Central banks across the region have been stepping up the pace of intervention in foreign exchange markets to support their currencies, resulting in a drop in FX reserves. In most countries, reserves are down by around 10% from their recent peaks, and while some of this is due to shifts in asset prices (valuation effects), policymakers have also confirmed that they have been intervening aggressively. As we have noted previously, most countries in the region still have a buffer of reserves that is well above where measures of adequacy suggest they need to be and they can continue intervening heavily for several months yet. One exception is Vietnam, where reserves are equivalent to just over three months’ worth of imports. This explains why the central bank (SBV) has recently been hiking interest rates aggressively, including by 100bp at an unscheduled meeting last week. Further rate hikes seem likely over the coming months as the SBV takes on the bulk of the work supporting the dong.
EM Drop-In (Thursday 3rd Nov): This 20-minute emerging markets briefing will take in our latest views on how the macroeconomic picture will inform EM financial markets, what Brazil’s election result means for the country’s economic outlook and our forecasts for Hungary’s forint and the Colombian peso. Register here.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services