Asia FX: Indonesia, Philippines and India under pressure – BNY

BNY’s Bob Savage highlights growing stress across emerging Asian assets as higher U.S. yields, a stronger Dollar and Oil shock weigh on Indonesia, the Philippines and India. IDR has hit record lows amid downgrades and index removals, while EM bonds face rising inflation and funding costs. Policymakers respond with FX intervention and bond support, but vulnerabilities remain elevated.

Record-low IDR and broader EM strain

"Indonesia, the Philippines and India are facing mounting financial vulnerabilities as the global bond selloff and Iran war oil shock intensify pressure on already-fragile emerging Asian economies. Rising U.S. Treasury yields and a stronger dollar are fueling capital outflows, weakening regional currencies and increasing pressure on central banks to tighten monetary policy even as growth slows."

"IDR has hit fresh record lows, which will pose a test for the BI tomorrow: equities are down again, while 10y bonds are stable, holding near 6.76%. Both Moody’s and Fitch have downgraded Indonesian bonds, warning about new government policy shifts. IDR has shed 14% of its value since President Prabowo Subianto took office in October 2024."

"MSCI has removed six Indonesian companies from its index and dropped another 13 from its small cap index. Politics matters more than natural resources in some nations."

"The Philippines has cancelled a 7y bond sale as investors sought yields as high as 8.125%. Treasurer Sharon Almanza said that the government rejected all bids because the “rates are too high.” There were PHP 37bn of bids against the PHP 30bn sale."

"This contrasts with India, where 10y rates fell 3bp to 7.10%, partially reversing yesterday’s 7bp rise. The government raised fuel prices by 3%, in its first hike in four years, helping to ease fiscal concerns. EM bonds face inflation from energy imports, a stronger USD and higher U.S. rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)