India, Indonesia Support Local Currencies as Iran War Hits

• Indonesia and India intervened to support their currencies as the Iran war hit emerging markets
• Rupiah and rupee fell to near-record lows, among Asia’s worst performers this year
• High oil prices and energy dependence may weaken the rupee further; both central banks remain ready to intervene

Indonesia and India both implemented foreign-exchange market interventions to safeguard their currencies during the period when emerging-market assets experienced turmoil from the outbreak of the Iranian war.

Both the countries are engaged in India Indonesia local currency support efforts as part of rupee rupiah intervention actions to back their currencies amid downward pressure on emerging market currencies Iran war, with the RBI FX intervention and Bank Indonesia currency support aimed at maintaining India Indonesia forex stability in the face of the broader Iran conflict market impact.

In a statement, Senior Deputy Governor Destry Damayanti stated, “Bank Indonesia will continue to be present in the market to maintain exchange rate stability and prevent the impact of the escalating Middle East conflict”.

Traders with knowledge of the situation reported that the Reserve Bank of India executed dollar sales in response to rising crude oil prices, which resulted from the Middle East conflict. The traders requested anonymity as they were not authorized to speak publicly.

Central banks from Indonesia, India, and Turkey implemented currency protection measures recently because investors became more cautious about high-risk investments after the Iranian conflict began. Asian economies, which depend on crude imports, face increasing inflation threats and expanding trade deficits because of rising oil prices.

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The central bank of Indonesia announced that it would conduct its operations through permanent and steady market interventions that will cover both offshore and onshore trading activities, which include non-deliverable forward contracts, spot market operations and bond transactions, according to Damayanti.

She observed that the rupiah lost value according to the regional pattern while Indonesia maintained its foreign-exchange reserves at $154.6 billion throughout January.

The rupiah declined to 16,919 per dollar before it reached its lowest point since the beginning of the year, when it recovered. The Indian rupee dropped to a historic low after it lost 0.8% of its value. The South Korean won, and these two currencies together make up the group of Asian currencies that have performed the worst in 2023.

Shaun Lim, who works as an FX strategist at Malayan Banking Bhd, stated that the rupee will lose value because India shares a border with the Iranian conflict, the country depends on oil imports and oil prices will likely remain elevated. He said that when the rupee experiences extreme pressure, the Reserve Bank of India will step in to control the situation.