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As global markets brace for the US Federal Open Market Committee (FOMC) meeting on early Wednesday, Bloomberg came out with the analytical piece suggesting a build of strong forex reserves by Asia’s emerging economies.

“Central bank holdings of foreign currencies in the region’s fast-growing emerging economies hit $5.82 trillion as of May, their highest since August 2014. When China’s cash pile is stripped out, emerging Asian central banks’ reserves stood at an all-time high of $2.6 trillion,” said the piece.

Bloomberg also adds, “While the Fed is expected to maintain a dovish outlook when it meets this week, economists say the accelerating US recovery means the bank will need to signal a policy turn sooner than anticipated. Central banks in South Korea and New Zealand already have said their improving economies may eventually justify higher interest rates.”

The piece quotes Tuuli McCully, head of Asia-Pacific economics at Scotiabank as saying, “Any hint of a Fed shift on tapering will quickly test defenses including current-account surpluses and foreign-exchange holdings.”

While noting the conditions, DBS Bank’s Economist Radhika Rao said, per Bloomberg, “Compared to 2013, regional countries, particularly the most affected, are in a less vulnerable position.”

Market implications

The analytical piece suggests a less vulnerable condition for the Asian economies should the Fed adheres to tapering, which in turn could help the key currencies to hold grounds versus the US dollar.