HANOI, May 6 (Reuters): Emerging Asian currencies slumped on Friday, 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% 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%, to its lowest since November 2020, while China stocks fell 1.8% 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 U.S. 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% each. Singapore's benchmark index fell 1.5% and was headed for its worst day in more than two months.
South-East 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.
Malaysia's central bank, Bank Negara Malaysia (BNM), is meeting on Wednesday and is widely expected to hike policy.
"We project the Overnight Policy Rate (OPR) to be raised by 25bps to 2.00% on May 11, followed by another 25bps hike in the third quarter of 2022 that will bring the OPR to 2.25% by the end of the year," said Julia Goh, senior economist for Malaysia at UOB said.
Regional markets also came under pressure following the rise in U.S. Treasury yield which breached the 3% mark after data showed that labour market conditions in the U.S. continued to tighten. This led yield on the Singapore 10-year benchmark treasury paper to climb 2.730% to its highest in over six years.
The Malaysian 10-year benchmark yield also rose to a more than five-year high of 4.466%.
Oil prices continued their ascent on supply concerns ahead of an imminent European Union embargo on Russian oil. Vietnam's benchmark stock index was set for its fifth straight weekly loss amid a series of high-profile corporate arrests, triggering a $40 billion wipeout from domestic stocks. - Reuters
Already a subscriber? Log in
Get 20% OFF The Star Digital Access
Cancel anytime. Ad-free. Unlimited access with perks.
