Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Weaker Dollar Is Reprieve for Central Banks Hoping to Ease More

Forex Aug 11, 2020 05:36PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Weaker Dollar Is Reprieve for Central Banks Hoping to Ease More

(Bloomberg) -- The dollar’s weakness is giving central banks in Asia room to ease monetary policy further amid concerns that the region’s economic recovery is plateauing.

A 10% decline in the Bloomberg dollar index since its March high has stemmed a tide of capital outflows triggered by the coronavirus pandemic and drawn foreign investors back into Asia’s capital markets.

That dynamic strengthens local currencies and keeps a lid on inflation, giving central banks the option of reducing interest rates without being hemmed in by fleeing capital or rising prices.​

While many are opting to hold rates for now, they have relatively more room to ease versus their global peers and have scope to unleash programs such as quantitative easing or use other targeted tools to spur lending.

“A weak U.S. dollar is on balance positive for Asian economies and good news for central banks,” said Janet Mui, an investment director at Brewin Dolphin (OTC:BDNHF) Holdings Plc in London. “The worst situation for an emerging market central bank is usually a slump in the local currency, capital outflows, rising inflation,” which would prompt rate hikes.

All Asian currencies have strengthened against the greenback since the Bloomberg Dollar Spot Index reached a peak in late March. Indonesia’s rupiah has led the advance, gaining more than 10%, while the South Korean won has risen almost 7%.

Growth Risks

The dollar reprieve comes as the resurgent coronavirus threatens to stall an already fragile economic recovery. Goldman Sachs Group Inc (NYSE:GS). warned last month that Asia-Pacific economies, which accounted for more than 70% of global growth in 2019, passed a major inflection point in June when the pace of the region’s reopening “slowed materially.” China and Vietnam are among very few economies in Asia projected to grow this year.

While economists say the bulk of emergency easing is likely over -- for example, China’s central bank is sticking to a restrained path -- more policy measures are still expected.

The Bank of Thailand this month held its benchmark interest rate at an all-time low and said it was prepared to use “additional appropriate monetary policy tools” to support an economy suffering the biggest blow in Asia from the coronavirus pandemic. India’s central bank also held its policy rate at a record low last week while outlining a range of measures to support a fragile banking sector.

New Zealand’s central bank is expected to hold steady when it meets Wednesday, though unemployment could pressure it to move again. Indonesia and the Philippines, which will announce policy decisions next week, have cut rates aggressively this year and are using other tools, such as reducing reserve ratios for banks, to support growth.

Reserves Boost

Downsides of dollar weakness include stronger local currencies which make exports less competitive.

Some central banks have capped appreciation by buying dollars or have taken advantage of the greenback’s weakness to restock their foreign currency reserves. China’s foreign currency holdings rose $54.9 billion, or 1.7%, from the previous month to $3.3 trillion in July. India has accumulated a record amount of foreign exchange reserves worth almost $535 billion.

Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore, said the weaker dollar will allow officials to go beyond rate cuts and consider quantitative easing without fear of capital outflows. Indonesia’s central bank has already ventured into direct financing of the government.

“A weaker U.S. dollar may push some Asian central banks toward monetizing fiscal deficits and debt as the repercussions on their own currency and inflation will be smaller,” he said.

©2020 Bloomberg L.P.

Weaker Dollar Is Reprieve for Central Banks Hoping to Ease More
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email