Policymakers will have to accept that their currencies will depreciate against the greenback as the U.S. begins its tightening cycle, Ravi Menon, Singapore's central bank chief, said on Monday.
His comments came as currencies across Asia have tumbled in the wake of the U.S. Federal Reserve hiking interest rates in December for the second time in a decade and saying it now expected to hike three times in 2017.
The dollar got another boost, with the dollar index, which measures the greenback against a basket of currencies, climbing to a 14-year high, after Donald Trump's surprise election win led to increased inflation expectations.
Menon advised policymakers to plot an even course.
"Peace of mind and staying calm is very important," he said at the UBS Wealth Insights conference in Singapore on Monday. "Exchange rates respond to differentials and expected returns as seen by interest rate differentials, growth rate differentials and earnings differentials; it's a natural mechanism."
He added that sometimes moves were overdone.
"There are knee jerk reactions, but it's important that policy makers stay calm, absorb some of these changes, lean against them where necessary to moderate or dampen some of the most excessive swings," he said.
"By and large, accept that this must be so. If the U.S. economy is growing faster, inflation is higher, interest rates are going up, then obviously the returns of dollar assets will be higher, so there will be some capital outflow."
Menon added that he expected Asian economies would be "stirred," but not overly shaken by the dollar's appreciation, as most of the region's economies were generally in good shape, especially compared with both the global financial crisis and the late 1990's Asian financial crisis.
Menon didn't mention any particular countries that may not be taking a "zen" view of their currencies' decline, but both China and Malaysia have recently taken steps to contain their currencies' movements.
In addition, Singapore's central bank, the Monetary Authority of Singapore (MAS) uses its exchange rate, rather than interest rates, to set monetary policy because of the city-state's small size and open economy.
The MAS, which has official policy-setting meetings just twice a year, sets its monetary policy by adjusting an undisclosed trading band for the currency based on a basket of currencies weighted to reflect trade levels with the city-state. The MAS may intervene if the currency moves outside its band; it was suspected of stepping into the market late last year as the U.S. dollar climbed over 1.45 Singapore dollars.
Separately, late last year, Malaysia's currency, the ringgit, took it on the chin amid market turbulence after Trump's surprise win, with the exchange rate flirting near levels last seen during the late 1990's tumult.
That led Malaysia's central bank to intervene in the market to support the ringgit and to issue a warning to banks to restrict trading in offshore non-deliverable forwards (NDFs) on the currency.
China's intervention to support its currency against the dollar, which has been ongoing for many months, may have broader implications for trade relations.
During the campaign, President-elect Trump had vowed to label China a currency manipulator for the purposes of a competitive trade advantage and threatened to impose a tariff of as much as 45 percent on China's exports to the U.S.
The rhetoric may not fall by the wayside now that the election is over.
In an interview with The Wall Street Journal last week, Trump inaccurately claimed that China's yuan was "dropping like a rock," and that China was only moving to support the currency "because they don't want us to get angry."
Since Trump's win in November, the yuan had fallen to nearly eight-year lows against the dollar, but has since recovered slightly and analysts attributed the slide primarily to the strength of the dollar, as based on currency movements within the yuan's trade-weighted basket, policymakers appeared to be supporting the currency.
Singapore's Menon also expressed concern about the potential for Trump to carry through with his threats.
"Major trade conflicts between major trade partners are unambiguously bad for the rest of the world," he said, noting the complexity of global supply chains.
"It's not a question of whether there're tariffs against China or Mexico, because we are all integrated. Trade restrictions on either of these two countries, especially China, must mean downstream effects cascading through Asia," he said, citing discussions with businesses involved with supply chains, logistics and import-export.
But Menon added that the eventual shape of U.S. trade policy under Trump was "highly uncertain."
"There is a still strong body of views within the broader U.S. establishment and government that trade has been on the whole beneficial to the U.S. and that extreme trade measures cause more harm than good for everyone involved," he said.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter