In the West, high inflation has forced many economic policymakers to turn hawkish. America’s Federal Reserve, for example, felt compelled to raise interest rates by 0.75 percentage points on June 15th, faster than planned. The Fed’s new haste to combat inflation is complicating East Asia’s fight against the same foe. Higher interest rates in America attract global capital flows, putting downward pressure on Asia’s currencies. Hong Kong, which has pegged its currency to the American dollar, and Macau, which has pegged its currency to Hong Kong’s, were obliged to raise interest rates the day after the Fed did so. Malaysia and Taiwan have also raised interest rates already this year and Indonesia, where interest rates are 3.5%, is forecast to increase them next month, according to JPMorgan Chase, a bank.
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