Central Bank of Singapore chief urges restraint on FX intervention
(Bloomberg) — Southeast Asia has done a “decent job” of allowing markets to absorb some shocks from aggressive U.S. monetary tightening while ensuring that currency weakness does not spin out of control. , according to the head of the central bank of Singapore.
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“It comes down to finding the right balance between letting the exchange rate depreciate to absorb the shock; not to fight it, not to fight market moves too much,” Monetary Authority of Singapore chief executive Ravi Menon said in an interview with Bloomberg Television’s Haslinda Amin.
At the same time, central banks must “lean against the wind” and deploy some of their foreign exchange reserves as they have done so that the situation does not spiral out of control. “A lot can happen when the exchange rate moves too fast, too far,” including a disanchoring of confidence, he said.
Four of Southeast Asia’s largest economies – Indonesia, Thailand, the Philippines and Malaysia – are grappling with more than 8% depreciation in their currencies this year, prompting active intervention and policy rate hikes partly to reduce imported inflation. Countries have handled the situation well and the fundamentals are now stronger than five years ago, according to Menon, as he urged his peers to remain vigilant.
“If the dollar appreciates much faster than that, then yes, we have to be concerned,” Menon said.
Southeast Asian central banks explore toolbox to tackle risk
In the Philippines, officials signaled they would act to prevent the currency from “going above 60” pesos to the dollar, virtually drawing a line in the sand. Elsewhere, including Japan and India, officials have deployed billions of dollars to hedge their currencies against dollar strength against the backdrop of the Federal Reserve’s steep rate hikes.
This month, Singapore tightened monetary policy for the fifth time since October 2021 to tackle inflation, which it sees remaining high through 2023. The latest printout showed that core prices, which is l favorite indicator of the MAS, accelerated again in September at the fastest pace in almost 14 years. years as the costs of commodities and entertainment rise.
Still, inflation rates in Asia are subdued compared to the United States, where rising prices have triggered a “faster and more severe” tightening than in other parts of the world, the MAS chief said. Slower growth and recession risks, particularly for the US, UK and Europe, loom next year as the world grapples with the fallout from rate hikes, it said. -he declares. Still, there is a silver lining.
“Given inflation, a slowdown in the global economy isn’t entirely a bad thing,” Menon said. “It’s a good way to ease those inflationary pressures. Provided the slowdown is light, short and shallow.
The dollar remains the dominant global currency “by far” where nothing comes close so to refer to this trend where there is greater use of local currencies on regional trade as de-dollarization “is a word much too strong”
“I don’t think we can take away the fact that 60-80% of central bank reserves are held in US dollars. The US dollar is on the other side of 90% of all currency trading in the world. This shows how strong the dollar’s position is.”
Menon is gearing up to welcome some 60,000 people to Singapore’s FinTech Festival from Nov. 2-4, which will be the event’s first in-person gathering since 2019. The festival will feature panels with public and private banks and business leaders. company, including Grab co-founder Anthony Tan, Central Bank of Kenya Governor Patrick Njoroge, Binance CEO Changpeng Zhao and Melinda French Gates
–With help from Richard Lewis and Karthikeyan Sundaram.
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