Asia FX: IDR, PHP and INR under pressure

Asia FX: IDR, PHP and INR under pressure – MUFG

BSP Policy Rate

4.50%

Current policy rate of the Bangko Sentral ng Pilipinas, deemed insufficient against rising inflation.

Oil Prices

$100/bbl

Oil prices expected to remain above this level, influencing the INR's performance.

USD/INR Target

100.00

Potential target level for the USD/INR exchange rate if geopolitical tensions persist.

§ 01 Executive Snapshot

What: Asian currencies IDR, PHP, and INR are under pressure due to high US yields and elevated Brent oil prices.
Who: MUFG’s Lloyd Chan and impacted currencies include Indonesian Rupiah (IDR), Philippine Peso (PHP), and Indian Rupee (INR).
Why it matters: The performance of these currencies is crucial for regional economic stability amidst geopolitical tensions and rising commodity prices.

Higher US 2-year yields are exerting downward pressure on the IDR, PHP, and INR.
A meaningful easing in pressure on these currencies would require a de-escalation in geopolitical risks, particularly a US–Iran agreement.
PHP is particularly vulnerable due to rising inflation and a BSP policy rate of just 4.50%, which is insufficient to offset the risk premium.

The current currency pressures reflect a broader trend of rising US interest rates impacting emerging market currencies.
Geopolitical risks, especially in the Middle East, play a significant role in the valuation and stability of these Asian currencies.

Immediate market consequences include potential further depreciation of IDR, PHP, and INR against the USD if current conditions persist.
Long-term implications could involve shifts in investor sentiment and capital flows towards safer assets if geopolitical tensions remain unresolved.

Regulatory risks include potential interventions by central banks, such as the RBI, to stabilize the INR.
Infrastructure dependencies on oil prices and geopolitical developments may complicate recovery efforts for these currencies.

Watch for any breakthroughs in US–Iran negotiations that could stabilize oil prices and reduce geopolitical risks.
Monitor upcoming economic indicators and central bank policy announcements that might affect the monetary stance in the Philippines and India.

§ 07

What currencies are currently under pressure?

The Indonesian Rupiah (IDR), Philippine Peso (PHP), and Indian Rupee (INR) are under pressure.

Why are IDR, PHP, and INR facing downward pressure?

They are facing downward pressure due to high US yields and elevated Brent oil prices.

How could geopolitical risks affect these currencies?

A de-escalation in geopolitical risks, particularly a US–Iran agreement, could ease pressure on these currencies.

What are the potential long-term implications for these currencies?

Long-term implications could involve shifts in investor sentiment and capital flows towards safer assets if geopolitical tensions remain unresolved.