The Indonesian rupiah hit its lowest level in nearly three years as Asian currencies fell to new multi-year lows on Thursday, hit by investor fears over global growth and persistent selling of risky assets. A day after Hungary raised rates by a hefty 3 percentage points to defend its currency, risk aversion was elevated in Asia with stock markets in Korea, Indonesia and the Philippines falling between 4 and 7 percent.
The rupiah hit its lowest in nearly 3 years at 9,950 a dollar, the Philippine peso weakened to its weakest since early 2007 at 49 per dollar while the Malaysian ringgit fell to 3.5771, a nearly 2-year trough. The broad selling in emerging markets seemed to have sucked Asia in deep, even though it is backed by better fundamentals, such as ample reserves and growth estimates in higher single digits even in dismal global circumstances.
"The nasty part is that deleveraging/balance sheet hole-plugging can produce indiscriminate selling, so Asia can be swept up even though its fundamentals are better," said Sean Callow, a strategist at Westpac Bank Central banks in India, Indonesia, Korea and the Philippines have been intervening to slow their currencies' decline and some of them were suspected of being in the market on Thursday.
Analysts reckon policy makers are however merely smoothing the currency depreciation, and are tolerant of the weakness at a time when the risks of recession in Asia's main export markets are as high as that of heavy capital outflows triggered by the credit crisis.
"Adding liquidity to increasingly thin and volatile markets is a valid policy decision, and note that FX reserves of most economies are ample," Patrick Bennett a strategist at Societe Generale said in a note. "We would only become concerned with a central bank attempting to defend a particular level, or one which was clearly acting contrary to economic fundamentals."
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