By Patturaja Murugaboopathy and Gaurav Dogra
(Reuters) – Asia’s foreign reserves have fallen this year as central banks have intervened to support their currencies, with Japan, Indonesia and South Korea leading the declines.
Foreign reserves in twelve countries, from Japan to India, fell by about $50 billion to $7.5 trillion at the end of June. In the same period last year they were up 2.2%.
Foreign investor inflows into Asian bonds fell 34% in the first half of this year from a year ago, data from stock exchanges and bond market associations show.
While the decline in reserves is not severe enough to trigger a financial crisis or leave countries struggling with their import payments, analysts note that the decline in balance sheets and controlled external liabilities could still impact investor sentiment and lead to portfolio loss. outflow.
Import coverage ratios, which indicate how many months a country can sustain imports if all other inflows cease, have risen this year for India, South Korea and China. However, according to Reuters calculations, these ratios have fallen for countries such as Malaysia, Indonesia and Thailand.
Asian currencies fell sharply in the first half of the year as the Federal Reserve’s hawkish stance and high interest rates supported the dollar. The yen was the biggest regional loser, falling about 11% against the dollar, prompting several rounds of likely central bank interventions to support the currency this year.
Meanwhile, Indonesia’s central bank also raised interest rates in April to curb the rupiah’s currency decline and prevent capital outflows.
With major events such as the US elections and possible shifts in Federal Reserve monetary policy looming this year, regional currencies are expected to experience greater volatility in the second half of the year.
“If the US Fed eventually starts cutting rates, potentially causing a temporary dollar depreciation, the credibility of Asia’s central banks will be tested,” said Saurav Sen, senior analyst at Gimme Credit.
“Countries that have the ability to increase their reserves at that time to keep their currencies competitive against the dollar will be able to control volatility. Think of countries like China and India,” Sen said.
Bucking the trend, India’s foreign reserves rose 4.9% to $653.71 billion in the first half of the year.
