News ID: 215157
Published: 0543 GMT May 16, 2018

More pain could be in works for Indian rupee and Indonesian rupiah

More pain could be in works  for Indian rupee and Indonesian rupiah

Emerging market currencies are likely to feel more pressure amid the move higher in US bond yields, a top Deutsche Bank economist said on Wednesday.

"In a rising global interest rate environment, those countries with current account deficits that have relied on fixed income capital inflows to finance those deficits, and that's Indonesia in spades, are going to find it more difficult," Michael Spencer, Asia Pacific chief economist at Deutsche Bank, told CNBC's Nancy Hungerford, CNBC wrote.

The Indonesian rupiah, Philippine peso and Indian rupee have been among the weakest currencies in Asia for the past five or six months for that reason, he said.

Emerging market currencies have come under pressure this year, with the rupiah down about four percent against the greenback so far. On Wednesday, the currency dropped to its lowest levels since October 2015, last trading at 14,105 to the dollar.

"As US rates continue to rise, that's going to put more and more pressure on the rupiah, the peso and the rupee," Spencer added.

That comes amid the broader move higher in US yields: The yield on the benchmark 10-year US Treasury note surged above the three percent level in the last session to 3.091 percent, its highest level since 2011.

Meanwhile, Spencer said higher inflation seen in emerging markets, notably Indonesia and the Philippines, coupled with weaker currencies would compel central banks there to raise interest rates.

Indonesia's central bank was expected to announce its decision on interest rates on Thursday. Reuters reported that 13 out of 21 economists it polled had indicated that Bank Indonesia would raise the seven-day reverse repo rate by 25 basis points to 4.5 percent.

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