Indonesia, India intervene to support currencies amid Iran war
The war is sparking a rally in oil prices, which will increase import costs and inflationary pressures for most Asian economies
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CENTRAL banks in Indonesia and India have intervened in foreign-exchange markets to cushion the impact of higher oil prices and a stronger US dollar amid the military conflict in the Middle East.
Erwin Hutapea, the executive director of Bank Indonesia’s monetary and securities asset management, said on Monday (Mar 2) that the central bank will remain present in the market through interventions in the spot and non-deliverable forward markets, both onshore and offshore.
The Reserve Bank of India is intervening in small amounts to support the Indian rupee, traders in Mumbai said, asking not to be named as they are not authorised to speak to the media.
Hutapea wrote in a cellphone message: “Bank Indonesia will continue to closely monitor market movements and respond appropriately, including ensuring that the rupiah exchange rate moves in line with its fundamentals.”
India’s central bank did not immediately respond to an e-mail seeking comments.
Asian currencies weakened against the US dollar on Monday, as the US-Israeli war against Iran sparked a rally in oil prices.
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Most economies in the region are net importers of the fuel, and a sustained climb threatens to raise import costs and increase inflationary pressures for them.
The Indonesian rupiah slid as much as 0.4 per cent to 16,845 rupiah (S$1.30) for each US dollar on Monday, in the largest fall since Jan 29.
The rupee fell as much as 0.5 per cent, the biggest drop since Feb 6.
Higher oil prices will pose further fiscal challenges to Indonesia at a time when it is receiving additional scrutiny from global investors and credit-rating agencies, analysts at Barclays Bank wrote in a note.
An oil-supply shock will hurt most Asian currencies, reflecting the negative economic hit and adverse impact on most current-account balances, Barclays Bank strategists wrote in a note.
South Korea’s won, the Singapore dollar and the rupee are relatively more vulnerable than their peers to such a shock, they added. BLOOMBERG
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