The Indian rupee jumped on Thursday, leading rises in emerging Asian currencies, while the Indonesian rupiah rebounded from a four-year low on expectations the central bank will raise interest rates later in the day to support it.
The rupee rallied sharply to 67.5 to the dollar levels after the central bank said it would supply dollars to oil companies through a separate window in its latest attempt to shore up the currency. The currency fell to an all-time low of 68.8 on Wednesday.
Bank Indonesia is seen increasing borrowing costs at a meeting later in the day in a bid to shore up Asia's second-worst performing currency so far this year.
Spot rupiah rose 0.1 percent to 10,920 per dollar in interbank market with the central bank spotted providing dollar liquidity, traders said. On Wednesday, the rupiah hit 10,950, its weakest since April 2009.
The forwards market pointed to a slight rebound in the rupiah with one-month non-deliverable forwards against the dollar strengthening to 11,420.
Banks in Indonesia still placed dollar bids higher than 11,000, but their levels were lower than Wednesday, traders said. Local companies were also waiting for the central bank's decision before buying the greenback for month-end payments, according to traders.
"Some expected BI to raise rates up to 50 basis points as the rupiah approached even 12,000. Such a hike may stabilise the rupiah for the short-term," said a Jakarta-based currency trader.
"But the increase is a two-edged sword. It may hurt sentiment in bonds and stocks," said the trader.
Five out of seven analysts polled expected BI to raise the benchmark rate by between 25-50 bps. All seven expected a 25 to 100 bps hike in the overnight deposit facility rate, or FASBI, to help prop up the rupiah.
The rupiah was the second worst-performing Asian currency with a 11.8 percent loss against the US dollar, according to Thomson Reuters data. The most-battered Asian unit was the rupee, which has fallen 18.7 percent.
That compared with a 11.2 percent depreciation in the yen's , which was hit by the Abenomics.
The rupee and the rupiah were most vulnerable to an anticipated reduction in quantitative easing