The Business Times

Shrinking yield gap sends Asian currencies to multi-year lows

Published Wed, Jun 22, 2022 · 12:38 PM

ASIAN currencies fell on Wednesday (Jun 22), highlighting the pressure wrought by a narrowing yield premium as the pace of policy tightening in the region lags that of the US.

The Philippine peso slumped to its lowest level in more than 16 years while South Korea's won slid to the weakest since July 2009. Hong Kong's de facto central bank bought the local currency at a record pace to prevent it from crossing the weak end of the trading band.

Regional currencies are bearing the brunt of dovish central bank policy as Asia's monetary authorities scramble to catch up with the Federal Reserve in raising borrowing costs. Idiosyncratic factors such as a widening current-account deficit for the Philippines and stock outflows for South Korea are adding to the pressure.

"Central bank rate signals are becoming a bigger driver of Asian currencies," said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. "Downward pressure on currencies where central banks are behind the curve in managing inflation will increase, particularly as the Fed keeps hiking aggressively."

The peso dropped as much as 0.7 per cent to 54.635 per dollar, its weakest level since November 2005. The won fell to a 13-year low of 1,297.85 to the greenback. The Thai baht and China's yuan slipped at least 0.4 per cent.

"The peso is vulnerable to a new record low, given the Fed's aggressiveness and if Bangko Sentral ng Pilipinas only does gradual hikes," said Jonathan Ravelas, chief market strategist at BDO Unibank in Manila.


Start and end each day with the latest news stories and analyses delivered straight to your inbox.


Park Sang Hyun, an economist at HI Investment & Securities, said swings in the won may increase as the currency is "relatively more exposed toward policy of the Fed, higher energy price and dependency on economic cycle of China".

No hurry

Central banks in the Philippines and Malaysia have started tightening policy but analysts expect them to move more slowly than the Fed. Incoming Bangko Sentral ng Pilipinas Governor Felipe Medalla on Wednesday reiterated the monetary authority is unlikely to raise its key rate by more than 25 basis points on Thursday.

"Most likely not," Medalla said in a mobile-phone message when asked if a bigger rate increase is needed due to the peso's drop. "Of course, I don't know for sure how MBMs will vote," he added, referring to Monetary Board members.

Some other policymakers have indicated a more patient stance. Indonesia's central bank does not need to rush to raise interest rates unless it sees fundamental inflationary pressures, Governor Perry Warjiyo said Wednesday.

Similarly, Thailand has refrained from raising borrowing costs and opted instead to cap prices of essential goods to contain inflation. BLOOMBERG



BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to

Banking & Finance


Get the latest coverage and full access to all BT premium content.


Browse corporate subscription here