Emerging Asian currencies slumped, with the yuan hitting a 18-month low, after investors aired concerns that rising interest rates and China reinforcing its “zero-COVID policy” could impede economic growth across the region.
The Taiwanese dollar and the Indian rupee led losses, falling 0.7 percent each against the greenback, and ringgit fell to its lowest in more than two years.
China said it would fight any comments and actions that distort, doubt or deny the country’s COVID-19 response policy, state television reported on Thursday, after a meeting of the country’s highest decision-making body.
The yuan fell 0.4 percent, to its lowest since November 2020, while China stocks fell 1.8 percent following the news.
“China’s stand may serve to dampen some hopes of any COVID-19 policy shift, which suggests that economic recovery will remain prolonged and uneven,” IG analysts said in a note.
The sell-off also comes amid fears that central banks around the world will have to hike policy rates even more aggressively than planned to combat inflation, therefore potentially pushing economies into a recession.
The Bank of England (BOE) on Thursday, hiked interest rates by 25 basis points (Bps) but flagged a risk of recession and a double-digit inflation growth in Britain, spooking markets that witnessed a short-lived rally on the back of the US Federal Reserve’s rate hike announcement.
Equities in the region were battered too, with bechmark indices of Philippines, South Korea and India falling over 1 percent each. Singapore’s benchmark index fell 1.5 percent and was headed for its worst day in more than two months.
Southeast Asian economies have begun mirroring the Fed and hiking interest rates to tackle price pressures exacerbated by the Russia-Ukraine conflict – and supporting economic growth as the region emerges from a pandemic-driven downturn.
