27 Feb 2023 | News & Feature

TFP W9 2023: Do not fear the widening rate differential

  • More aggressive tightening campaigns in Europe could weaken the DXY going forward, but the USD may still strengthen against non-core Asian currencies considering Asian central banks’ reluctance to match the Fed or European central banks’ tightening pace.
  • Widening rate differentials are consistent with Asian central banks’ growth-friendly outlook as a weaker currency may add to Asian countries’ competitiveness in the export market while also helping to trap aggregate demand inside the domestic economy.
  • Still-high coal prices coupled with better FX liquidity conditions in the domestic economy would help BI to stabilise the Rupiah’s value despite the widening rate differential between Rupiah-denominated and safe haven assets.