ASIAN central banks are expected to act against exchange rate volatility to prevent a fresh wave of imported inflation as oil prices climb due to war in the Middle East, ANZ Research said.
Higher oil prices triggered by geopolitical tensions in the Middle East could put pressure on Asian currencies, ANZ said in a report, particularly as a stronger US dollar and rising energy import bills weigh on external balances.
“Currency stability will be a key focus for policymakers across Asia,” it said.
“While higher oil prices and a stronger USD (US dollar) typically exert depreciation pressure on Asian currencies, authorities are likely to act to prevent excessive moves that could amplify imported inflation.”
Past shocks have highlighted the need to manage exchange rates as a way to control inflation, ANZ noted.
“Central banks are therefore expected to lean against disorderly currency weakness through a combination of verbal guidance, liquidity management and, where necessary, direct intervention,” it said.
ANZ said the Philippines could face greater pressure from rising oil prices as it remains one of the Asian economies with weaker external balances.
It added that the country is among the few in the region whose current account position had not improved significantly since the energy price shock that followed the Russia-Ukraine war in 2022.
This has made the country more vulnerable to higher oil import costs compared with other Asian economies that have strengthened their trade balances in recent years.
Most economies in Asia were said to have rebuilt current account surpluses or narrowed deficits due to strong export growth, providing a buffer against higher energy import bills. The Philippines and Indonesia, however, remain exceptions.
Fitch Ratings, meanwhile, said emerging markets including the Philippines were facing increased challenges as oil and gas imports were the most direct way the conflict could affect economies.
“Net fossil fuel imports are large as a share of GDP (gross domestic product) for many small emerging markets,” it said.
“Among the larger economies, we estimate they are equivalent to three percent or more of GDP for Chile, Egypt, India, Morocco, Pakistan, the Philippines, Thailand and Ukraine,” it added.
Fitch noted that last December, it already projected that Ukraine would post a large current account deficit of 15.4 percent this year while the Philippines and Egypt were expected to record more moderate shortfalls of 3.4 percent and 3.0 percent, respectively.
“More protracted high energy prices could add to external strains facing these sovereigns, especially if other stresses emerge, for example, disruption to remittances,” it added.
“Prolonged higher energy prices would also increase fiscal strains for governments that have subsidy regimes designed to shield consumers, or that launch similar measures in response to higher energy prices.”
