Fall in Asian currencies revives fears of ’97 crisis

The rapid fall in Asian currencies recently has again revived the fears of 1997 Asian financial crisis, Doha Bank Group CEO Dr R Seetharaman (

At that time investor’s panic reaction and massive withdrawal of funds resulted in the collapse of the Thai baht and then the crisis spread throughout Asia. On account of shortage of capital, Asian countries suffered shortage of credit and put them in deeper crisis.

The currency markets are witnessing huge swings in recent times on concerns of US fed tapering its easing measures, he said. The Indian rupee has fallen by more than 15% this year and breached 65 against the US dollar last week despite the measures introduced by finance ministry and the Reserve Bank of India.

Brazilian lira has also fallen by more than 15% this year and was above 2.45 against the US dollar last week. Russian rouble has fallen by close to 8% this year and was at 33 against the US dollar by end of last week. Indonesian rupiah has fallen by close to 14% this year against the US dollar. The Chinese yuan has remained stable and was at 6.12 against the US dollar.

In recent years, the Asian capital markets have seen huge inflows since the sub-prime crisis and outflows are witnessed in the current year on account of possible tapering by the Fed and further create pressure on their currencies.

Standard & Poor’s in a recent report has said “the pain will be more for countries with high current account deficits and could undermine their creditworthiness. Countries in the Asia-Pacific region could see a sharp outflow of capital, raising financing costs for companies and increasing exchange rate volatility with improved economic conditions in the eurozone and the US.”

Last weekend at the Jackson’s Hole Symposium, economists had raised concerns that a premature policy tightening by the Federal Reserve is a major risk for US economy. The US dollar index closed at 81.361.

The recent minutes of from the Fed’s July meeting showed almost all officials support a slowing of bond buying later this year, depending on the data. A few members emphasised the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases.

Recent communications from the Fed has sent mixed signals and huge swings across markets such as the surge in US bond yields, dip in Asian currencies, drop in equities and volatile commodity movements. A better clarity in their communications in relation to tapering is what the markets are looking for.

The Australian dollar was $0.9030 last week. It recovered a bit last week after private sector data showed Chinese manufacturing growth is on the rise.

The Japanese yen closed at 98.72 against the dollar last week. It was at a three week low against the dollar last week as there was expectation for restating the case for more monetary easing. The euro was at $1.3383 last week.

It remained supported after data showed that manufacturing activity in the eurozone expanded at the fastest pace in some 26 months in August 2013 however weakened a bit after the fed minutes.

The British pound was $1.5569 last week. It weakened as a senior policy maker in Bank of England stated that smooth economic recovery is not yet assured and the BoE has not ruled out fresh stimulus measures.