The Indian rupee and Indonesia’s rupiah led a weekly loss in Asian currencies on increasing speculation the U.S. will scale back monetary stimulus as the world’s biggest economy improves.
Indonesia’s currency slumped to the weakest level since 2009 and the rupee dropped to a record amid concern about widening current-account deficits. India has seen its foreign-exchange reserves sink as much as 7 percent this year to $277 billion, while Indonesia’s holdings shrank 18 percent to $92.7 billion.
“Central banks are being tested, especially those in Indonesia and India,” said Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia in Singapore. “People just don’t have the confidence that they have enough reserves to shore up their currencies.”
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, lost 0.5 percent during the week to 115.35 in Singapore. The rupee fell 1.3 percent to 61.66 per dollar and reached an unprecedented 62.005 yesterday. The rupiah dropped 0.96 percent to 10,385 and touched 10,435, the lowest since June 2009.
The Federal Reserve will reduce its $85 billion of monthly bond purchases in September, according to 65 percent of economists surveyed by Bloomberg. The program has boosted the supply of dollars and driven demand for emerging-market assets. Initial jobless claims in the U.S. fell to the least in almost six years, official data showed this week.
The Reserve Bank of India increased efforts this week to stem the rupee’s plunge by cutting the amount local companies can invest overseas without seeking approval to 100 percent of their net worth, from 400 percent. The central bank has also tightened cash supply, restricted currency derivatives and curbed gold imports.
The rupee depreciated 11 percent this year, the second-worst performance among 12 of Asia’s most-traded currencies. The current-account deficit was an unprecedented 4.8 percent of gross domestic product in the 12 months through March. The government aims to narrow that to 3.7 percent this year, Indian Finance Minister Palaniappan Chidambaram told parliament in New Delhi on Aug. 14.
Indonesia’s central bank reported yesterday that the second-quarter current account deficit widened to a record $9.85 billion, from $5.82 billion in the first three months of the year. Policy makers held the benchmark reference rate at 6.5 percent this week, as predicted by 16 of 25 analysts surveyed by Bloomberg.
“Bank Indonesia has become more tolerant to the rupiah trading lower,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The main problem is the current-account position, which increasingly looks like it will stay for a while and isn’t easily solved by monetary policy alone.”
Malaysia’s ringgit slid 0.7 percent to 3.2770 per dollar this week and reached a three-year low of 3.2838 yesterday after Moody’s Investors Service said this week that the nation’s sovereign rating could come under pressure due to the government’s weakening fiscal position.
The country’s current account is forecast to have swung to a deficit of 1 billion ringgit ($305 million) in the second quarter, from a surplus of 8.7 billion ringgit in the prior three months, according to the median estimate in a Bloomberg News survey before government data due on Aug. 21.
“Balance of payments and current-account deficit or surpluses, alongside foreign ownership of local bonds are a key focus as we approach a period where liquidity will be removed from the market by the U.S.,” London-based Martyn Harrison, a currency options sales trader at Marex Spectron, wrote in a research report yesterday. “It is clear Indonesia alongside India and Malaysia have these problems in abundance.”
Elsewhere in Asia, the Philippine peso dropped 0.3 percent to 43.63 per dollar this week and South Korea’s won lost 0.1 percent to 1,113.59. Thailand’s baht fell 0.1 percent to 31.27. China’s yuan rose 0.2 percent to 6.1130 and reached a 19-year high of 6.1090 yesterday. Taiwan’s dollar declined 0.2 percent to NT$30.002.