Surprise tightening in Asia increases pressure on dovish central banks

Central banks in Asia that remained dovish even in the face of soaring inflation may see their resolve tested after a surprise tightening by peers in the region leaves their currencies vulnerable to sell-off, according to economists.

Thailand, which has kept its key rate at a record low to bolster the economy’s recovery, is seeing the baht emerge as this month’s worst performer out of 12 Asian currencies tracked by Bloomberg. The Indonesian rupiah weakened for the sixth straight week amid foreign outflows driven by the nation’s widening monetary policy gap with the US.

“Wobbly exchange rate, and an increasingly determined Fed are adding to the urgency for monetary tightening in many Asian markets,” said Frederic…