Indonesia’s rupiah skids to lowest in more than 2 years ahead of rate decision

Indonesia’s rupiah on Thursday fell to its lowest in two and a half years and yields jumped sharply ahead of a widely expected half-point rate hike by the central bank later in the day, while other Asian currencies weakened on global growth headwinds.

Sentiment across Asian markets was soured by rising Treasury yields on expectations of a persistent aggressive stance by the US Federal Reserve, also pushing the US dollar higher and pressuring emerging market currencies.

The US dollar index edged higher to 113.04, extending a nearly 1% surge overnight, and also touched a 32-year peak against the yen. The benchmark Treasury yield was at a 14-year high due to a sharp sell-off in government bonds.

“Exceptional US dollar strength is an endogenous risk amplifying global policy headwinds, accentuating risks of global recession and financial shocks,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

Strength in the dollar and rising Treasury yields pressured one of the highest-yielding notes in emerging Asia: Indonesia’s 10-year yield jumped sharply to a four-month high of 7.534%.

“The market players took selling positions for anticipating Bank Indonesia’s decision on the policy rate today,” analysts at Maybank said.

“Moreover, there were additional pressures for the global investors to shift their investment position from the emerging markets to the developed market after witnessing recent strengthening of US dollar to rupiah and more attractive yields on the US government bonds,” they added.

Bank Indonesia is expected to increase its benchmark interest rate by 50 basis points (bps), according to a Reuters poll, which will be its second successive half-point hike as it aims to catch up with peers and tame runaway inflation.

The rupiah weakened as much as 0.6% ahead of the rate decision, trading at its lowest level since April 2020. Shares in Jakarta were up as much as 1.5%, marking their fourth straight gain session.

Asian currencies firm, equities advance as risk sentiment improves

Elsewhere in Asian markets, fears of a looming recession trampled risk appetite.

China’s yuan edged 0.1% lower with Beijing keeping its benchmark lending rates unchanged for a second straight month.

Malaysia’s ringgit dropped 0.2%, while the Indian rupee edged 0.1% lower with South Korea’s won depreciating 0.5%.

Reactions to global developments were mixed among Asian equities. South Korean shares and Taiwanese stocks fell 1.3% and 1.7%, respectively, while shares in Malaysia were up 0.8% and Philippines stocks rose by 0.3%.

Shares in India declined up to 0.4%.

Highlights:

** Japan imports surge on weaker yen, fanning inflation fears

** Chinese capital steps up COVID measures as cases quadruple

** India’s economic growth outlook stagnates, stuck in lower gear