ANALYSIS: Asia's currencies are flashing oil shock alarm

SINGAPORE — Policymakers across Asia are taking urgent and unusual measures to stabilize their economies as the global energy supply shock drives currencies to record lows and interest rates higher.

The region relies on roughly 80% of oil shipped through the closed Strait of Hormuz, and stress in foreign exchange markets is already affecting growth. Governments face a delicate balancing act: supporting currencies can stoke inflation, while higher rates can slow economic growth, compounding the impact of rising fuel costs.

India has urged citizens to limit overseas travel and avoid gold purchases to protect the rupee, one of the world’s biggest losers since the Middle East conflict cut crude supplies. Prime Minister Narendra Modi has reportedly reduced his motorcade to save fuel, while the central bank is believed to be spending $1 billion daily to support the rupee, trading at record lows.

Indonesia surprised markets by raising interest rates by 50 basis points and taking control of commodity exports to keep proceeds in local currency. The Philippines’ central bank has already hiked rates, with inflationary pressures prompting speculation of another out-of-cycle increase.

“How many hikes does it really take to attract capital? The answer could be quite a lot,” said Navin Saigal, head of global fixed income for Asia Pacific at BlackRock. “On the flip side, what do those hikes do to the domestic economy? The answer is, it could be quite a lot.”

India, Indonesia, and the Philippines are particularly vulnerable, as oil importers facing capital outflows. U.S. interest rate expectations have added pressure, pushing the rupiah to 17,700 per dollar, the rupee near 97 per dollar, and the peso close to 62 per dollar.

The growing unease is turning financial markets hostile. In Indonesia, the rupiah has dropped 12% under President Prabowo Subianto, who has pursued interventionist policies unpopular with investors. Stocks have fallen, and S&P Global Ratings warned that controlling commodity shipments could hurt exports and government revenue.

India’s central bank has also used the forward dollar market heavily, with short-term commitments exceeding $100 billion, raising concerns over reserve sustainability.

Despite these pressures, India, Indonesia, and the Philippines still have room to raise rates and deploy reserves to stabilize their currencies. Analysts caution, however, that uncertainty and policy changes continue to impose a “complexity premium” for investors in the region.

Asia’s currencies remain under pressure as policymakers navigate one of the region’s most challenging economic shocks in years. -Reporting by Ankur Banerjee and Rae Wee in Singapore, Jaspreet Kalra in Mumbai, Marc Jones in London and Rodrigo Campos in New York; Editing by Jacqueline Wong/Reuters