HONG KONG — For many countries, inflows of cash would be a blessing. But incoming money has proved to be too much of a good thing in parts of the Asia-Pacific region, pushing currencies to uncomfortably high levels just as economic growth is tapering off.
For many months, policy makers across the region have deployed a range of tools to try to dampen the adverse effects that can come when too much money flows into an economy. The latest example came Wednesday, when the central bank in New Zealand confirmed it had been selling New Zealand dollars on the currency markets in recent weeks to try to stem the sharp rise the kiwi has staged over the past two years.
The central bank governor, Graeme Wheeler, speaking in regular twice-yearly testimony to Parliament, did not say how much money had been deployed. Still, the acknowledgement spotlighted the discomfort that is being felt in the many parts of the region that have seen their currencies soar over the past few years.
On Tuesday, the central bank in Australia hinted at its unease with the Australian currency’s strength — the Australian dollar is hovering near multiyear highs — which it cited as an important reason for an interest rate cut that took borrowing costs in the country to a record low.
The Thai finance minister also recently voiced his concern that the Thai baht was too strong. In the Philippines, the central bank cut a key interest rate in late April in a move that analysts said was aimed in part at reversing some of the gains the peso had made in recent years.
For export-dependent countries, in particular, strong currencies can be a significant burden, because they make locally made goods and services more expensive for overseas customers.
“The strength of the Australian dollar has been a real pain for the country’s manufacturing and tourism sectors,” said Klaus Baader, a regional economist at Société Générale in Hong Kong.
A string of rate cuts by the Australian central bank over the past 18 months has failed to weaken the currency, he added, because Australia’s robust economic fundamentals, low public-sector debt and strong investment returns, relative to those in other developed economies, continue to make it an attractive destination for overseas cash.
The same applies to many parts of emerging Asia, whose growth rates and interest rates easily top those in the West.
Years of aggressive monetary easing in the United States, meanwhile, mean that there is more cash looking for yields — some of which has flowed into promising markets in Asia and elsewhere.
Similar plans for large-scale asset purchases by the Japanese central bank raise the prospect that the phenomenon will intensify this year as Japanese investors, too, join the search for returns outside their home country, many analysts say.
That, said Frederic Neumann, a co-head of Asian economics at HSBC in Hong Kong, raises the likelihood of more efforts by policy makers across the region to rein in lingering currency and asset price pressures.
“South Korea, Hong Kong, Taiwan, Singapore, Malaysia — all have already tried to restrict lending because of the rapid inflow of cash,” he said. “I think we will see more of this over the coming two years.”
Article source: http://www.nytimes.com/2013/05/09/business/global/09iht-asiaecon09.html?partner=rss&emc=rss