# Investment Strategies

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Currency Defence Gets Revamp in Emerging Asia Amid Crisis A New Playbook for Currency Defence Central banks across emerging Asia are broadening their currency-defence toolkits in 2026, as recurring West Asia tensions, elevated oil prices and expectations of higher-for-longer US interest rates keep regional currencies under strain. "Currency defence" traditionally means a central bank selling foreign-exchange reserves in the spot or forward market and raising interest rates to make holding the local currency more attractive, alongside macroprudential steps to slow volatile portfolio flows. Increasingly, though, policymakers are supplementing these with tools designed to draw in fresh dollar inflows without depleting reserves — incentivising diaspora deposits and bond purchases, and encouraging exporters or corporates to convert dollar holdings. Analysts at BofA Global Research say the shift reflects an effort to preserve reserves amid structurally higher volatility, while still protecting currency stability and domestic liquidity. Rupiah, Rupee and Baht Among the Region's Weakest Indonesia's rupiah, India's rupee and Thailand's baht rank among the five worst performers this year in a basket of 22 emerging-market currencies tracked by Bloomberg, according to BofA. The rupee has touched a series of record lows since May 2026, briefly nearing 96–97 per dollar, and remains down roughly 6% for the year. The rupiah has also repeatedly hit record lows, breaching the psychologically significant 18,000-per-dollar level, with year-to-date losses estimated at roughly 4–8% depending on the period measured. The baht's path has been less uniform — it strengthened sharply in late 2025 on gold-linked and safe-haven inflows before conditions turned less favourable this year — so its exact year-to-date standing varies by source and should be read with some caution. What's Driving the Weakness A broad US dollar rally, driven by expectations the Federal Reserve will hold rates higher for longer, combined with an oil-price spike after the escalation of the Iran conflict, exposed the region's heavy reliance on energy imports. India's rupee has faced the sharpest pressure from rising crude prices, sizeable foreign portfolio outflows (reportedly $18–21 billion from equities this year), a persistent current-account deficit and unresolved trade-deal uncertainty with Washington. Indonesia's rupiah has been weighed down by earlier Bank Indonesia rate cuts that narrowed the yield gap with the US, outflows from the government bond (SUN) market, a comparatively low tax-to-GDP ratio and shallow domestic capital markets exposed to shifts in foreign sentiment, compounded by political unease following unrest last August. Thailand's baht contends with a soft growth outlook (2026 GDP forecasts of roughly 1.8–2.1%, below potential), weak exports, high household debt and limited room for further rate cuts, alongside volatile flows linked to gold trading and shifting capital-flow documentation rules. Policy Tools and Mitigation Steps Bank Indonesia raised its benchmark rate by a cumulative 100 basis points in May–June 2026, to 5.75%, while intervening in spot, domestic and offshore forward markets and lifting yields on its SRBI securities to attract portfolio inflows; incentives have helped draw roughly $1.6 billion in bond inflows over two months. The Reserve Bank of India sold a reported $53 billion in spot dollars in fiscal year 2026 and built a forward net-short position exceeding $110 billion, alongside swap auctions and curbs on banks' open currency positions; it also introduced an FCNR(B) deposit scheme absorbing banks' hedging costs to attract diaspora dollars, raising roughly $40 billion within weeks — though reserves have still slipped from a February peak near $728 billion to around $682–690 billion. The Bank of Thailand has focused on managing volatility in both directions: intervening to counter sharp swings, tightening documentation requirements on large foreign-currency inflows and gold-linked transactions, and holding its policy rate near 1% given limited room to ease further without adding to instability. Managing FX Risk: What Businesses and Investors Can Do For companies and investors, the practical takeaway is to plan for continued volatility rather than a quick resolution. Firms with dollar-denominated costs or debt can hedge exposure through forwards or options, or use natural hedges that match revenue and costs in the same currency; exporters may benefit from forward-selling a portion of expected receipts. Investors holding rupiah, rupee or baht assets should watch central-bank rate decisions and reserve data, diversify currency exposure, and stay cautious about relying on short-term portfolio inflows that can reverse quickly. Diaspora savers considering schemes such as India's FCNR(B) deposits should weigh attractive yields against multi-year lock-ins. Some analysts caution that if the imbalance lies more in the composition of capital flows than in trade fundamentals, FX intervention alone may not be enough — implying further policy innovation, and continued vigilance from market participants, through the rest of 2026.   Sources Bloomberg via Business Standard – "Currency defence gets makeover as central banks in Asia guard reserves" (Aug 9, 2026) – https://www.business-standard.com/world-news/currency-defense-gets-makeover-as-central-banks-in-asia-guard-reserves-126080900524_1.html Bank Indonesia – Official press release: "BI-Rate Increased to 5.50% to Stabilise Rupiah Amid Global Turmoil" – https://www.bi.go.id/en/publikasi/ruang-media/news-release/Pages/sp_2810726.aspx Reserve Bank of India – Official website – https://www.rbi.org.in Bank of Thailand – Official website – https://www.bot.or.th/en CNBC – "Asia's worst-performing currency is set for a rocky start to 2026" – https://www.cnbc.com/2025/12/22/asia-worst-performing-currency-rupee-trade-deal-outflows.html IDN Financials – "Rupiah slides past 17,312 per dollar, worst performer in Asia" – https://www.idnfinancials.com/news/63209/rupiah-slides-past-17-312-per-dollar-worst-performer-in-asia Related YouTube Videos CNA Explains: Indonesian rupiah hits record low (Channel News Asia) – https://www.youtube.com/watch?v=8_kuEmme1YU CNA Explains: From tofu to debt payments – the real cost of a weaker rupiah (Channel News Asia) – https://www.youtube.com/watch?v=Z5TzO6C_RZE IMFER 2026 – Opening Remarks by the Governor of the Bank of Thailand (official) – https://www.youtube.com/watch?v=NyfkZdLAkkY