China, Malaysia and Thailand’s currencies undervalued – IMF Report

IMF’s valuation seems to contrary to what other analysts think, who believes that we could be seeing more easing actions coming from different Asian Central Banks soon. Traders tend to “front run” Central Bank actions, thus this could be the reason why Asian currencies remaining depressed. Should the economy outlook improves, we could see all Asian currencies rallying strongly to reflect their inherent fundamental strengths.

China, Malaysia and Thailand’s currencies are undervalued relative to the economies’ medium-term fundamentals, and the countries in question should focus on fiscal policy to support growth, the International Monetary Fund said Tuesday.

In its World Economic Outlook, the IMF found that while foreign exchange movements since the global financial crisis had been consistent with demand rebalancing, gains in currencies of nations with external surpluses had halted over the past eight months.

It warned that continued accumulation of international reserves was contributing to global imbalances and associated weaknesses, and said these were likely to remain above desirable levels in the absence of decisive action by governments.

“It must be emphasized that the policies that would most effectively lower global imbalances and related vulnerabilities serve the self-interests of the countries concerned, even when considered purely from a domestic viewpoint,” the IMF said.

While countries with external deficits may need strong medium-term fiscal consolidation programs, “the requirements for emerging market economies with external surpluses and undervalued currencies are to cut back official reserve accumulation, adopt more market-determined exchange systems, and implement structural reforms, for example, to broaden the social safety net.”

The current accounts of many Asian nations, including China, Malaysia, Singapore, South Korea and Thailand, are stronger and the currencies weaker than they would be with a more desirable set of policies, the IMF said, adding that several of them have very large official reserves or internal distortions that curb consumption.

Via – MarketWatch


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