IMF Not Worried About FX Pressures in Mumbai, Manila & Jakarta

May 11, 2018 by Petar Markoski

International Monetary Fund (IMF)There has been an increase in selling pressures on assets in both Indonesia and the Philippines, but the International Monetary Fund (IMF) is not too worried about this. One reason for the calm stance of the IMF is because this pressure was not triggered by domestic factors. Plus, Asian markets have proven over the years to have had stronger buffers than it did in the past.

Recently, three Asian currencies have suffered a loss of 5 to 6 percent in value in recent years. The three currencies that have taken a hit are the Indian rupee, the Philippine peso and the Indonesian rupiah. They are currently the three Asian countries which are most vulnerable right now because of their current account deficits.

In recent weeks, these three countries have been hit hard. First, the US Treasury reported yields reaching 3 percent. This is usually a sign of capital outflows. Second, oil prices have hit a three and half year high. This automatically increases the costs of imports and can be a sign of greater external imbalance.

However, Changyong Rhee, director of the IMF's Asia-Pacific department shrugged off these concerns. The current weakness of these three currencies was just a natural adjustment to market changes, and all three countries have some economic wiggle room.

In a statement, Mr. Rhee said

If you ask me whether we have concerns, I think at this moment not much. There is room for interest rates in Asia to also go up and also room to rely on the flexible exchange rate system more compared with the period in 1997

Global Factors Influencing Asian Currencies

The weakening of these currencies mostly comes from global factors and not domestic factors. Plus, most Asian countries have learned the lessons of the Asian financial crisis and have accumulated more reserves and built stronger accounts. Mr. Rhee also pointed out that inflation and interest rates were still low and that debt was still denominated in domestic currencies.

The IMF has remained positive about Asia’s growth potential but acknowledges that the region is still vulnerable towards a variety of global factors and potential market corrections. The IMF predicts the region will grow its economy at 5.6 percent in 2018 and 2019. The IMF recommends that Asian governments should continue to strengthen policy buffers. When these output gaps are closed, they would not need to be fiscally supported. With wage and prices experiencing only moderate pressure, many central banks can afford to be more accommodating.

Petar Markoski

Petar is the finance guru, if you need a good investment this is the guy you go to! Working majority of his days in the finance sector as trader, he has gathered plenty of insight on binary options and the forex markets

Comments are closed.