Asia reserves seen strong as Thailand, India and Philippines hold firm buffers
Asia’s foreign-exchange reserves are under the spotlight as war risks and soaring oil prices rattle markets, with Nomura seeing Thailand, India and the Philippines as well buffered against currency volatility.
Bloomberg reported that Asia’s foreign-exchange reserves, worth more than US$8 trillion in total, are becoming a crucial weapon that is giving central banks across the region greater firepower to defend their currencies amid the Middle East war, a key risk to Asian economies that largely depend on oil imports.
Watching Asian currency stability
Currencies across Asia are facing intense pressure as investors worry that higher oil prices will hurt regional economies on several fronts, including rising import costs, higher inflation, and the knock-on effects on economic growth and fiscal balances.
A sharp weakening in currencies also raises the risk of capital outflows.
At present, the central banks of Indonesia, India and Taiwan have already begun intervening in the market to support their currencies, while China has opted to signal support for the yuan through its daily reference rate.
Currency traders in Mumbai said the Central Bank of India intervened by selling US dollars to support the rupee after it fell to a record low.
In Taiwan, Eugene Tsai, head of the central bank’s foreign exchange department, said on Thursday that the bank had also stepped in to manage the foreign exchange market this week in response to massive capital outflows.
Elsewhere, authorities have focused on signalling confidence. South Korean President Lee Jae Myung has instructed his cabinet to respond swiftly and closely monitor volatility in both the stock market and the currency market.
In China, the central bank has moved against market trends by setting a stronger daily reference rate this week to contain the fallout, even as the US dollar has continued to surge.
The impact has already become clear this week. India’s rupee fell to a record low.
Meanwhile, South Korea’s won weakened to levels last seen during the global financial crisis, while Indonesia’s rupiah slid to its weakest level in six weeks.
Madhavi Arora, chief economist at Emkay Global Financial Services, said exchange-rate stability is a key foundation for broader financial stability. If the currency remains stable, other parts of the economy are more likely to remain steady as well.
Asia’s reserves summarised
Foreign-exchange reserves held by major central banks in Asia have risen by more than US$600 billion from the end of 2024, according to Bloomberg calculations. The main reason is that authorities across the region have steadily accumulated inflows over the past year.
In addition, the sharp rise in gold prices and the weakening of the US dollar have further boosted the value of reserve assets.
Policymakers are now using those accumulated reserves as a buffer to manage the impact of the war in Iran, given the high risks the situation poses to the region’s economies.
Data from Nomura Holdings show that every 10% increase in oil prices would reduce Asia’s current-account balance by about 0.3% of GDP on average, underlining how higher energy costs are directly eroding the region’s economic wealth.
Each country’s resilience depends on how much ammunition, or reserves, its central bank has on hand, and how long those reserves can serve as an effective buffer.
Data from BNY show that China, Taiwan and the Philippines are the best prepared in Asia when measured by reserves relative to import values.
By contrast, Malaysia, South Korea and Indonesia rank among the lowest on that measure, reflecting greater vulnerability if the situation drags on.
Sonal Varma, Nomura’s chief economist for Asia excluding Japan, said Indonesia and South Korea are among the economies with relatively low levels of reserve adequacy.
By contrast, Thailand, India and the Philippines are in the group with more than sufficient reserve accumulation, enough to manage and absorb currency volatility effectively.
Wee Khoon Chong, a strategist at BNY in Hong Kong, said that in a period of surging oil prices, foreign-exchange reserves inevitably become even more important.
However, he believes current reserve levels are still sufficient for intervention to preserve stability, because the present currency moves are not being driven by direct speculative attacks, but are mainly a spillover from US dollar strength and global market uncertainty.
