(Oct 27): Southeast Asia has done a “decent job” of allowing markets to absorb some shocks from an aggressive US monetary tightening while ensuring that currency weakness doesn’t spiral out of control, according to Singapore’s central bank chief.

“It goes back to striking the right balance between letting the exchange rate depreciate to absorb the shock — not to fight it, not to fight the market movements too much,” Monetary Authority of Singapore (MAS) managing director Ravi Menon said in an interview with Bloomberg Television’s Haslinda Amin.

At the same time, central banks must “lean against the wind”, and deploy some of their foreign currency reserves as they’ve done, so the situation doesn’t get out of hand. “A whole lot of things can happen when the exchange rate moves too fast, too far”, including a disanchoring of confidence, he said.

Four of the biggest economies in Southeast Asia — Indonesia, Thailand, the Philippines, and Malaysia — are grappling with more than 8% depreciation in their currencies this year, prompting active intervention and key rate increases in part to curtail imported inflation. Countries have been managing the situation well, and fundamentals are stronger now compared to five years ago, according to Menon, as he urged peers to remain vigilant.

“If the dollar appreciates much more rapidly than this, then yes, we do have to be concerned,” said Menon.

In the Philippines, officials have signalled that they will act to prevent the currency from “breaching 60” pesos to the dollar, practically drawing a line in the sand. Elsewhere, including in Japan and in India, officials have been deploying billions of dollars to shield their currencies against the dollar strength, with the backdrop of the US Federal Reserve’s steep rate hikes.

Singapore this month tightened monetary policy for the fifth time since October 2021 to fight inflation, which it sees staying elevated through 2023. The latest print showed core prices, which is the MAS’ preferred gauge, accelerated again in September to the fastest pace in almost 14 years, as the costs of staples and recreation surged.

Still, inflation rates across Asia were mild compared to the US, where price growth had triggered “faster and harsher” tightening than in other parts of the world, said the MAS chief. Slowing growth and recession risks, especially for the US, UK and Europe, loom next year, as the world contends with the fallout from rate hikes, he said. Yet, there is a silver lining.

“Given where inflation is, a slowdown in the global economy is not altogether a bad thing,” Menon said. “It’s a good way to relieve those inflationary pressures, provided the slowdown is mild, short, and shallow.”