Asian currencies are especially exposed to outflows as benchmark rates in the region are generally lower than their emerging peers, resulting in a wider differential with the US.
The use of creative ways to support their currencies is one way out of the dilemma of having to choose between allowing a currency to weaken, burning through reserves, or raising rates and crimping economic growth. The measures employed by India so far have largely succeeded as the rupee has been virtually unchanged this year even as most of its emerging peers have weakened.
The People’s Bank of China last month intervened in the offshore yuan market, increasing the cost for banks to borrow the currency from each other in Hong Kong to make it less attractive to bet against it.Some of these measures come with their own costs. In China’s case, investors who own the nation’s bonds are finding it more difficult to hedge as cash rates increase.
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