Oil prices have climbed again, surpassing the $120 per barrel mark, intensifying pressure on some of Asia's most vulnerable currencies. Multiple currencies have retreated to levels near their historical lows. Observations indicate that since the outbreak of war two months ago, the Indonesian Rupiah, Philippine Peso, and Indian Rupee have experienced significant and sustained declines, ranking them as the worst-performing currencies in the region. Data from Thursday showed the Indonesian Rupiah and Indian Rupee falling over 0.3% against the US dollar to touch new lows, while the Philippine Peso was merely 0.5 percentage points away from similar low levels. This wave of selling highlights these economies' high dependence on imported oil, making their currencies particularly susceptible to energy supply shocks.
As energy costs soar, investor concerns are mounting over fuel-driven inflation acceleration and the widening of current account and fiscal deficits. This situation may significantly increase the difficulty for central banks in balancing economic support against inflation containment. Strategist Wei Kunchang from Bank of New York noted, "Central banks might adjust their foreign exchange intervention intensity to protect reserve levels. The high oil price is a key factor in deciding whether to increase market intervention."
The Federal Reserve's decision on Wednesday to hold interest rates steady has further amplified market volatility. Analysis suggests this move will boost investor preference for the US dollar, as markets begin to anticipate potential delays in interest rate cuts by major economies, thereby exerting greater pressure on emerging market currencies. Compounding the issue, Brent crude prices hovered near four-year highs following reports of increased US pressure on Iran and statements from the former US administration regarding the potential continuation of a maritime blockade on Iranian ports without a nuclear deal.
In response to the冲击, several central banks have taken action. The Reserve Bank of India has implemented specific measures, including establishing a dollar swap window for oil refining companies and prohibiting banks from offering the most commonly used offshore Rupee trading instruments. These steps aim to curb speculation and support the currency, complementing the central bank's enhanced market interventions. Bank Indonesia stated it is prepared to take further steps to stabilize the Rupiah, committing to continuously strengthen interventions in both onshore and offshore markets and tightening rules for US dollar purchases to restrain capital outflows. The Philippine central bank has signaled its willingness to implement a series of moderate interest rate hikes to combat inflation.
However, analysts point out that without clear signs of de-escalation in the Iran situation, the effectiveness of current policies may be limited. Strategist Lloyd Chan from MUFG Bank emphasized in a Thursday report, "More credible signals of de-escalation are needed to alleviate the depreciation pressure." The pressure has even spread beyond emerging markets—the Japanese Yen weakened past the 160 level against the US dollar, hitting a new low for the year, raising market expectations that Japanese authorities might intervene in the market to support the currency.
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