War forces Asian economies to confront sliding currencies

SINGAPORE: Policymakers in the Asia-Pacific region are facing their toughest test since the Covid-19 pandemic, with few easy options, as they race to cushion their economies from an energy shock that is hitting harder and sooner than elsewhere.
Asia buys about 80% of the oil that is shipped through the Strait of Hormuz and, according to JP Morgan commodity analysts, it faces shortages that will worsen through April and May — meaning authorities will need to respond swiftly.
In Manila, drivers of jeepneys — colourful, souped-up minibuses — are already facing diesel prices that have tripled. A jet-fuel squeeze looms in Vietnam and South Korea's major cosmetics firms are searching far and wide for plastic resin to make the pots that hold their famous skincare products.
Like in the rest of the world, the effect of the US-Israeli war on Iran in Asia is the prospect of rising inflation and damaged growth.
Asian currencies — some already struggling — have come under heavy selling, putting them among the largest losers globally. This has brought back memories of the Asian financial crisis and leaves policymakers with some unpleasant choices: Raising rates, spending reserves, or seeing their currencies sink further.
India's rupee, Indonesia's rupiah and the Philippine peso have been pulled to record lows against the dollar this month, along with major troughs for the yen and South ⁠Korean won.
'The key problem is Asian currencies were too weak before', said Alicia Garcia Herrero, Asia-Pacific chief economist for Natixis in Hong Kong.
'The central banks... have no instrument', she said.
'Economies are going to plummet and... they cannot cut anymore, not only because of the inflationary pressure, but because they had already cut too many times'.
The dollar, one of the few havens in March, has made some of its sharpest gains in Asia — and to historic levels — rising more than 4% against the won, peso and Thai baht against a gain of around 1.5% on the euro.
Asian currencies are rooted near their record lows as a rampant US dollar buoyed by safe haven flows due to the widening war in the Middle East piles on the pressure on central banks in the region. — Reuters