Emerging Asian economies have accumulated the highest level of foreign exchange reserves since 2014, providing a strong buffer against market volatility if the Fed changes direction.
As of May, central banks in the region's fast-growing emerging economies held $5.82 trillion in foreign exchange reserves, the highest level since August 2014. Excluding China's cash reserves, central bank foreign exchange reserves in emerging Asia reached an all-time high of $2.6 trillion.
Nicholas Mapa, an economist at the ING Group in Manila, said that while some of the increase reflects a weak dollar and strong exports, policy makers are deliberately preparing for defense.
Mapa said that emerging economies must be accumulating food based on history, and they are more aware that the monetary policy stance of central banks in developed markets will eventually reverse and the potential impact of the Fed shrinking its schedule or eventually raising interest rates.
While the Fed is expected to maintain a dovish outlook when it meets this week, economists say the accelerated recovery in the US economy means the Fed needs to signal a policy shift sooner than expected. Central banks in South Korea and New Zealand have said their economic improvements may eventually justify interest rate hikes.