Amid a Rapid Rise in U.S. Interest Rates
The values of the currencies of emerging Asian countries showed the steepest decline since 1997 in the second quarter, amid a rapid rise in U.S. interest rates.
According to Bloomberg, the Bloomberg JP Morgan Asia Dollar Index fell 4.5 percent to 102.53 in the second quarter of this year. The index shows the values of the currencies of South Korea, China, Hong Kong, Taiwan, India and Southeast Asian countries in relation to the value of the U.S. dollar. The index dropped from 123.88 to 116.52 in the third quarter of 1997 and to 97 in the fourth. It fell from 115.36 to 104.63 from April 2008 to March 2009. In the third quarter of 2008, it showed a decline of 4.1 percent.
“The won-dollar exchange rate topped 1,300 won per U.S. dollar this month and the value of the South Korean currency is likely to have shown the most rapid decline in 11 years last month,” Bloomberg reported, adding, “The value of the Philippine peso fell most in 14 years in the second quarter of this year, the current value of the Indian rupee is the lowest in history, and the value of the Japanese yen vis-à-vis the U.S. dollar dropped 11 percent in the second quarter.”
According to Bloomberg, multiple central banks are in a dilemma due to inflation and currency value decline. “A rise in interest rate against the decline and inflation will slow down economic growth,” it said, adding, “Foreign exchange reserves have to be mobilized in order to curb the decline without an interest rate adjustment, and doing nothing as to the foreign exchange rate will result in capital outflow and an even faster rise in foreign exchange rate.”
At present, the foreign exchange reserves of Thailand and Indonesia are the lowest since 2020. Like many other emerging Asian countries, they have tried to control their foreign exchange rates while postponing a rise in interest rates in order to accelerate economic recovery. In South Korea, the key rate is likely to be raised at every remaining Monetary Policy Committee meeting of this year, that is, in July, August, October and November. The July adjustment is estimated at 0.25 percentage point or 0.5 percentage point.
Nonetheless, according to Bloomberg, the Asian countries are in better conditions compared to their financial crisis in 1997 and the taper tantrum in 2013. “The foreign exchange reserves of South Korea and India are the lowest in one year and yet amount to approximately US$400 billion and US$600 billion, respectively,” it said.