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.