Aggressive Fed rate hikes will put further depreciatory pressure on Southeast Asian currencies

Additional weakening of Southeast Asian currencies will drive import costs even higher in 2023

Companies in ASEAN should plan to continue operating in a high-cost environment in 2023, as additional weakening across regional currencies drives import costs even higher. Firms should expect price pressures to be particularly intense in Thailand and the Philippines due to their currencies’ greater vulnerabilities and their high import dependence on fuel and food commodities. Executives should evaluate how currency shifts are likely to impact their positioning in the market relative to other players, particularly those with local production. They should also engage with their distributors, continue to reduce supply chain inefficiencies, and actively seek out cost-saving opportunities. 


ASEAN currencies have continued to weaken in recent months, as the US Federal Reserve has hiked rates multiple times by 75 basis points, but central banks in Southeast Asia have not raised rates as quickly. Following the latest Federal Open Market Committee meeting, we expect the US Federal Reserve to continue on a path of monetary tightening in 2023. We have revised our base-case forecast for the US federal funds rate up to 5.75% by the end of next year.

Our View

As the Federal Reserve continues hiking rates at an outsized pace compared to all central banks in ASEAN, the region’s currencies will depreciate further. Due to differing domestic fundamentals among ASEAN markets, the level of depreciation will vary across currencies:

  • Thailand: The Bank of Thailand will continue to raise rates gradually, putting extreme depreciatory pressure on the baht. A recovery of the tourism sector will only marginally support the currency, as Chinese tourists won’t return en masse until 2024 at the earliest. 
  • Philippines: Large trade deficits will weigh on the peso, leading to further depreciation. However, aggressive rate hikes by Bangko Sentral ng Pilipinas will soften these pressures substantially.
  • Malaysia: Despite the recent strengthening of the ringgit due to a newly appointed prime minister, we expect the currency to weaken in the coming months, as rate hikes by Bank Negara Malaysia in H1 2023 won’t match rate hikes by the US Fed. 
  • Indonesia: The rupiah will experience moderate depreciatory pressure in 2023, as continued strength in Indonesia’s terms of trade on the back of high commodity prices will reduce the impact of aggressive rate hikes by the US Fed.
  • Vietnam: Large rate hikes by the State Bank of Vietnam and the selling of FOREX reserves will prevent the dong from depreciating as severely as other ASEAN currencies.

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