Regions

Asian growth plans at risk due to China meltdown

August 27
1:55 AM 2015

Chinese factor is impacting significantly growth plans of several economies in the Asian region.  The uncertainty in the stock markets and volatility in the foreign exchange (forex) have kept the many Asian nations in a gripping situation.

As a result, many Asian nations hesitate to take key decisions. Growth plans and key decision on economy stimulus are not taking off in many Asian nations. The current situation also indicates a possible currency war in the near future.

For instance, Bank Indonesia has decided to keep its interest rate unchanged. Many central banks spanning from South Korea to Thailand have favored postponing their decisions on interest rates. 

The ongoing uncertainty in Asian economies is reminiscent of the currency crisis in 1997-98. Asian countries fear that Chinese currency devaluation may lead to destabilizing other currency valuations inthe Asian region. 

The slowdown in the world's second-largest economy and latest currency devaluation are the major causes of concern for the emerging economies.

China's sudden devaluation of its currency Yuan is influencing all the Asian currencies. China devalued its currency by two percent on 11 August. Market analysts fear that uncertain in the forex market could lead to the currency war. Indonesian central bank governor Agus Martowardojo said that his country wouldn't follow competitive devaluation.

This statement indicates that some Asian nations could fall in line to devaluating their currencies to stay competitive. Though Indonesia is not falling in fray, the situation indicates possible currency war.

The latest crash across the global markets pulled down the world indices to multi-year lows. The currency market is worst hit. 

Some economists forecast that countries like India and Singapore may not go for the interest rate cut in the wake of volatility in the markets. 

Singapore is suffering from drop in exports and deflation in the economy. Until some time ago, Asian nations were favoring allowing free fall in their currencies. But, the latest bout of China's sudden devaluation of its currency disrupted the global market by triggering a huge tide of volatility.

A senior analyst at Asian market research firm opined that Asian countries can withstand the high interest rates for some more time. Asian nations like Malaysia and Indonesia would be forced to hike rates if currency situation becomes further worse. The growth forecast for Thailand was lowered to 2.7 percent from 3.5 percent. 

The abrupt devaluation of Chinese currency Yuan is totally upsetting the currency risk management plans of Asian countries.  While favoring devaluation of currency, Thailand said that it would keep its interest rate remain unchanged this month. On the other hand, South Korea came in to rescue its falling currency that hit four-year low, by offloading US dollars in the forex market.

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