Asian currencies slide down on Fed signals

August 26, 2013

With the indication by the Federal Reserve Bank of the US that the central bank could start scaling back its stimulus as early as September 2013 various Asian currencies fell as a response to this.
The rupee continued to depreciate against the dollar and reached a new low of 64.55. Other Asian currencies who suffered the decline include Indonesian rupiah; Malaysian ringgit Thailand’s baht, Philippine peso, Manila’s financial markets were closed from Monday to Wednesday due to heavy rains and a holiday when most of its Asian peers fell.

What is the impact of Fed Bank’s decision to taper the stimulus?

The U.S. economy generated a wave of cheap money when it introduced quantitative easing to tackle global financial crisis of 2007. The cheap money moved into emerging market currencies, equities and bonds. The recent Fed Bank indication of a phased withdrawal of its stimulus package currencies across the region has made foreign investors to sell their stakes and withdraw the money. Foreign investors have been pulling money out of India as the economy has slowed down and the cost of borrowing in dollars has risen.

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