Short-lived relief for India and Indonesia

Last week’s surprise decision by the US Fed to delay tapering of its QE programme provided an immediate boost to currencies and equity markets across Asia, including those in two of the region’s most troubled economies, India and Indonesia. The Reserve Bank of India even took advantage of the improvement in sentiment to roll back some of the liquidity tightening measures that it introduced in an attempt to support the rupee in July. However, both the rupee and the rupiah have fallen back over the past couple of days. Uncertainty over the outlook for Fed policy suggests that Asian markets are likely to remain volatile over the next couple of months. Deep structural problems in both India and Indonesia mean the rupee and rupiah are likely to bear the brunt of any further sell-offs.