Rupiah, Rupee Lead Drop in Asia Currencies as Fed Spurs Outflows

Indonesia’s rupiah and India’s rupee led a drop in Asian currencies this week as foreign funds pulled money from regional assets on speculation the U.S. will soon start tapering stimulus.

The rupiah fell by the most since 2008 as minutes of the Federal Reserve’s July meeting released Aug. 21 showed policy makers were “broadly comfortable” with reducing bond-buying this year should the U.S. economy improve. Thailand entered a recession in the second quarter and Malaysia’s current-account surplus shrank 70 percent, reports showed, prompting the baht and the ringgit to reach the weakest levels since 2010.

“Funds are flowing out from emerging markets, weighing on the regional currencies,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo. “The contrast is becoming clearer between the U.S., where the economy is recovering, and slowing growth in emerging countries.”

The Indonesian currency fell 3.7 percent this week to 10,780 per dollar yesterday in Jakarta, according to prices from local banks. The rupee weakened 2.6 percent to 63.33, the baht dropped 2.1 percent to 31.93 and the ringgit declined 0.7 percent to 3.3005.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most active currencies excluding the yen, declined 0.6 percent to 114.63, the biggest weekly drop in two months. Global funds sold $1.5 billion more Thai, Indonesian and Taiwanese equities than they bought in the first four days of the week, exchange data show.

Indonesian Deficit

The rupiah touched the lowest level since April 2009 yesterday after Southeast Asia’s largest economy posted a record current-account deficit of $9.8 billion in the second quarter, the largest in data going back to 1989, the central bank said on Aug. 16. Inflation accelerated to a four-year high of 8.6 percent in July, official data show.

The currency rebounded yesterday as Indonesia’s government released a policy package including relaxing mineral export rules, offering tax holidays and simplifying the investment-permit process.

“Sentiment toward possible Fed tapering and the widening current-account deficit drove the rupiah’s weakness,” said Aldian Taloputra, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender.

Indian Inflation

The rupee lost 13.2 percent this year versus the dollar, the worst performer among Asia’s 11 most-active currencies after Japan’s yen. The decline could fuel already “high” consumer-price inflation, the central bank said in its annual report released in Mumbai Aug. 22. Asia’s No. 3 economy also faces risks from a current-account deficit that’s not sustainable, slowing growth, a budget gap and rising bad loans at banks, the monetary authority said.

The Reserve Bank of India bought long-dated government debt yesterday in an attempt to stabilize markets after rising volatility threatened to hurt an economy that is already growing at near the slowest pace in a decade.

“The RBI has no choice but to maintain financial stability at this point, which means sacrificing growth in the near term,” said Tirthankar Patnaik, a strategist at Religare Capital Markets Ltd. in Mumbai.

The baht had its worst week since January 2007 after gross domestic product unexpectedly decreased 0.3 percent in the three months through June, after contracting 1.7 percent in the previous quarter, the National Economic and Social Development Board said Aug. 19. Thailand posted a current-account deficit every month in the second quarter, central bank data show.

Baht Bears

Morgan Stanley is bearish on the baht’s outlook and Citigroup Inc. is underweight on the currency, according to research reports published Aug. 22. Goldman Sachs Group Inc. cut the baht’s three-month forecast to 33 per dollar from 31.3, the bank said in a note yesterday written by analysts Mark Tan and Hui Ying Chan.

Malaysia’s current-account surplus was 2.6 billion ringgit ($788 million), the closest the country’s come to a deficit in data compiled by Bloomberg going back to 1999.

Elsewhere, the Philippine peso slumped 1.4 percent to 44.263 per dollar in two days after onshore financial markets were closed for the first three days of the week because of floods and a holiday. South Korea’s won declined 0.3 percent to 1,117 this week and China’s yuan slipped 0.1 percent to 6.1210. Taiwan’s dollar dropped 0.2 percent to NT$30.053.

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