“We expect central banks across the region to continue using a combination of liquidity tightening and intervention to lean against further depreciation in their currencies against the dollar,” said Abhay Gupta, strategist at Bank of America in Singapore. Southeast Asian central banks are becoming more tolerant of “pseudo tightening”, he added.
Southeast Asian central banks are using tools other than rate hikes to defend their currencies against the surging dollar as bets on higher-for-longer Federal Reserve rates take hold.
Indonesia is keeping a tight leash on liquidity by selling bills while Malaysia’s interbank rate has risen to the highest since July. The shift comes despite earlier calls for peak rates in Southeast Asia as the threat of food and energy-related inflation pressures as well as elevated Fed rates spur caution.
