Central banks across emerging Asia are developing innovative approaches to support their currencies without depleting foreign-exchange reserves. According to reports from Business Standard, India has attracted nearly $40 billion from its diaspora through high-yield dollar deposits, contributing to the rupee's recovery from record lows in May. South Korea's push to accelerate corporate dollar repatriation has helped the won achieve its biggest monthly gain since 2022, while Indonesia drew $1.6 billion in bond inflows over the last two months by offering incentives to foreign funds. Taiwan has also been instructing exporters to sell US dollars during currency weakness periods. As noted by M&G Investments, "This suggests that the imbalance lies more in the composition of capital flows than in trade fundamentals, meaning FX intervention alone may not be sufficient to address currency weakness."
Asian currencies continue to face significant pressure despite traditional defenses. According to Business Standard, Indonesia's rupiah, the Indian rupee and Thailand's baht rank among the five worst performers this year in a basket of 22 emerging-market currencies tracked by Bloomberg. By contrast, Latin American currencies occupy the top of the rankings, led by the Colombian peso, Brazilian real and Mexican peso. The region offers higher interest rates than most developing-nation peers and many countries are oil exporters, making them relatively insulated from higher oil price impacts. Multiple analysts, including those at Alpine Macro, State Street Investment Management and M&G Investments, note that the extent of weakness in Asian currencies has been surprising given a mix of positives including trade surpluses, solid macroeconomic fundamentals, robust exports and buoyant equity markets across the region.
The currency pressures have significantly impacted foreign-exchange reserves across the region. As reported by Business Standard, India, Indonesia, the Philippines and Thailand have witnessed Asia's biggest drawdowns in FX reserves since the start of the Iran war, with declines of 4% to 9%. Bank Indonesia boosted interest rates by 100 basis points in May and June and has continued currency market intervention, while the Philippines has raised rates by 50 basis points and the Bank of Korea tightened policy for the first time in three years. MUFG Bank Ltd. is forecasting two more increases by Indonesia and the Philippines, and at least one more hike by the BOK this year. According to M&G Investments, "Asian central banks are keeping more firepower given the greater uncertainty around global events including how oil prices, El Nino, US yields and the dollar may eventually pan out."
According to Business Standard, policymakers are increasingly focusing on attracting foreign currency inflows to preserve reserves amid structural volatility. Claudio Piron, head of Asia FX and rates strategy at BofA Global Research, noted that central banks are trying to balance FX stability needs with maintaining domestic liquidity. Desmond Fu, head of investment management at Western Asset Management, suggested that "Latin American currencies may retain an advantage on a total-return basis due to higher carry." However, he added that "on a spot basis, selected Asian currencies could close part of the gap if US yields stabilize, energy-market disruption doesn't intensify and the AI investment cycle continues to support technology exports." The measures broaden the toolkit for policymakers, supplementing traditional tools such as interest-rate hikes and foreign-exchange intervention that formed the first line of defense after the Middle East conflict sent oil prices soaring. Michael Wan, a senior currency analyst at M&G Bank in Singapore, emphasized that "Attracting more dollars will be one prong of the strategy."
