Asian central banks are increasingly facing currency pressures originating outside their borders. From South Korea to India and the Philippines, policymakers have ramped up efforts to curb offshore forex speculation as high oil prices, foreign fund exodus and a strong dollar pressure regional currencies.
South Korea’s finance ministry said on Sunday it will step up oversight of offshore currency derivatives. The Philippines has asked banks to ensure non-deliverable forward contracts are limited to economic purposes, while India has tightened limits on banks’ net open position to $100 million.
Indonesia, which unexpectedly raised interest rates on Tuesday, has said its central bank is active in currency markets “around the world, around the clock” to support the rupiah.
The warnings underscore concerns among Asian policymakers that offshore trading is adding to pressure on currencies. The oil-price shock from the US-Iran conflict has worsened the problem, hitting the region’s energy-importing nations. Indonesia’s rupiah breached the closely watched 18,000-per-dollar level, the Korean won has fallen to its lowest since the global financial crisis, while the Indian rupee and Philippine peso have hit record lows.
The efforts to curb offshore forex trading may help ease some pressure, but analysts doubt they can reverse the trend on their own.
“It may have some impact, but ultimately for the measure to be successful there needs to be a shift in the fundamentals as well,” said Michael Wan, senior currency analyst at MUFG Bank Ltd.
