Indonesia’s central bank intervened to curb losses in the rupiah, while traders said authorities in India and South Korea also sold dollars, a sign Europe’s debt crisis is undermining confidence in Asian emerging markets.
Bank Indonesia “intervened in the rupiah and bond markets,” Deputy Governor Hartadi Sarwono said in an interview in Jakarta. The Reserve Bank of India sold the greenback as the rupee weakened beyond 48 per dollar for the first time since 2009, a Mumbai-based trader at a state-owned bank said, declining to be identified because he isn’t authorized to speak to the media.
The Asian Development Bank cut its 2011 growth forecast for Asia excluding Japan today to 7.5 percent from 7.8 percent on signs a global economic recovery is faltering. Greece’s budget deficit widened 22 percent in the first eight months of the year, fanning speculation the country will fail to meet conditions for further bailout funds.
“Bank Indonesia coming in to intervene is a reflection of the kind of risk aversion in the market right now,” said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “Central banks, being central banks, will have to react to ensure that volatility doesn’t get out of hand.”
The rupiah fell as much as 2.6 percent today to 8,939 per dollar and was trading 2 percent lower at 8,883 as of 4:28 p.m. in Jakarta, according to data compiled by Bloomberg. The rupee weakened 0.9 percent to 48.01, before paring its loss to 47.78. The won slid to 1,107.82, the weakest level since March, before closing at 1,107.70.
Reserves to Spend
Central banks intervene in currency markets by arranging purchases or sales of foreign exchange. Indonesia has $125 billion in reserves with which to defend the rupiah, India has $285 billion and South Korea $312 billion.
The rupiah is the best-performer among the 10 most-active currencies in Asia outside of Japan since end-2008, having gained 23 percent, according to data compiled by Bloomberg.
"Since the first quarter of 2009, it’s been on an unabated appreciation path,’’ said Varathan. “There was never any reason along the way for Bank Indonesia to come in.”
Bank Indonesia needed to calm the market and doesn’t want further declines, Sarwono said. The rupiah’s loss was caused by sentiment from the debt crisis in Europe and “technical factors,” he said.
The sharp weakness in the rupiah is the first clear sign that Asian markets could catch European flu, Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in a note to media today.
“This is what a rush to exit looks like,” Wee-Khoon Chong, a fixed-income strategist at Societe Generale in Hong Kong, wrote in an e-mail to clients. “The market has finally woken up to the subtle easing from Bank Indonesia last week.”
Perry Warjiyo, Bank Indonesia’s director of economic research, said yesterday in Jakarta that policy makers are ready to “mix monetary policy toward loosening” if inflation slows and the economy expands less than expected.
The rupee has lost 6.5 percent this quarter, the worst performance among Asia’s 10 most-traded currencies, headed for the biggest loss since the collapse of Lehman Brothers Holdings Inc. in September 2008. The RBI doesn’t comment on day-to-day movements in the currency, Spokeswoman Alpana Killawala said.
“It looks like the RBI is in the market because we have seen some nationalized banks offering dollars since the rupee crossed 48,” said Vikas Babu, a currency trader in Mumbai at Andhra Bank Ltd. “Since then, speculative bidding has reduced.”
The won slumped as the finance ministry held an emergency meeting yesterday and said it will enhance monitoring of capital flows and markets to cope with any turbulence.
“Reports on the European debt crisis boosted the risk-averse sentiment in the market,” said Lee Jin Ill, a Seoul-based senior currency dealer with Hana Bank. “There was speculation that policy makers intervened.”
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