Asian central banks are intensifying efforts to curb offshore forex speculation as external pressures like high oil prices and a strong dollar weaken regional currencies. According to reports from The Economic Times, policymakers are increasing oversight of offshore derivatives and tightening trading limits to stabilize currencies like the rupiah, won, rupee, and peso, which have hit record lows. South Korea's finance ministry announced it will step up oversight of offshore currency derivatives, while the Philippines has asked banks to ensure non-deliverable forward contracts are limited to economic purposes. India has tightened limits on banks' net open position to $100 million.
The oil-price shock from the US-Iran conflict has worsened currency pressures, hitting the region's energy-importing nations particularly hard. As reported by The Economic Times, Indonesia's rupiah breached the closely watched 18,000-per-dollar level, while the Korean won has fallen to its lowest since the global financial crisis. The Japanese yen remains steady at 160.475 against the dollar, continuing to hover near the 160 level which is widely considered a "line in the sand" for official intervention. The Bank of Japan is expected to raise its key rate to 1.25% by the end of the calendar year, with economists polled suggesting a rate increase is likely this month and again next year.
Non-deliverable forwards, which make up about 4% of the global $10 trillion a day FX market, can play an outsized role in Asia where restrictions on convertibility are common. According to The Economic Times, activity driven out of global financial hubs such as Singapore, London and New York can sway local markets. The Reserve Bank of India has been particularly active, selling dollars primarily in shorter maturities, with the central bank's short dollar book likely surging to around $115 billion. Bank Indonesia has also sold dollars overseas to stabilize the currency.
Despite intervention efforts, analysts suggest the measures may help ease pressure but cannot reverse the trend alone. As reported by The Economic Times, Michael Wan, senior currency analyst at MUFG Bank Ltd, noted that 'it may have some impact, but ultimately for the measure to be successful there needs to be a shift in the fundamentals as well.' The energy supply crisis is already affecting economies like Germany and India that aren't closely linked to technology. Alessia Bernardi from Amundi's research arm warned that "a repricing of interest rate policy, along with higher oil costs and shortages, will mean stagflationary risk and some countries are now getting into a regressive outlook."
