War turmoil saps Asian reserves with Philippines, India hit most

Published Thu, May 14, 2026 · 10:27 AM

[MUMBAI] Foreign-exchange reserves are slumping across Asia as policymakers shell out funds to defend their currencies against the spike in oil prices caused by the Iran war.

The Philippines has led losses with its stockpile sinking 8.1 per cent since the conflict started to US$104 billion, while India’s dropped 5.2 per cent to US$691 billion and Indonesia’s slipped 3.8 per cent to US$146 billion, data compiled by Bloomberg show. The declines represent both the drain from spending to support local currencies and a reduction in the value of non-US-dollar holdings.

The slide in reserves adds to evidence that Asia has been one of the biggest losers from the Middle East conflict due to its reliance on energy imports. At the same time, there’s a widely held view that the region is currently better placed to handle economic turmoil than it was in past episodes, such as the Asian financial crisis in the 1990s or the 2013 taper tantrum.

“Asian economies, including India, have built up reserves as a first line of defence – their macro fundamentals are also stronger today – but they are also typically large oil importers,” said Duvvuri Subbarao, who was governor of the Reserve Bank of India (RBI) from 2008 to 2013. “Also, exports, which have been the main growth driver of Asian economies, are going to be hit.”

Asian central banks have stepped into currency markets with increasing frequency in recent weeks as surging energy costs worsen the outlook for their economies. Indonesia will make “smart interventions” in the foreign-exchange markets and deploy all of its monetary-policy instruments after the rupiah slid to a succession of record lows, a senior policymaker said this week.

India on Tuesday (May 12) raised import tariffs on gold and silver in an attempt to curb bullion purchases and defend its currency, as it grapples with the fallout from the Middle East war. The country is also considering other emergency steps to shore up foreign-exchange reserves, including hiking fuel prices, sources familiar with the matter said this week.

The Philippine central bank has supported the peso through foreign-exchange market intervention to manage volatility as the peso neared 60 per US dollar, but its actions were not enough to prevent the currency from weakening past that level. Policymakers raised their benchmark interest rate last month and said they were ready to deliver more tightening.

While central banks have been active to support their currencies, losses are significant. The peso has weakened 6.1 per cent since the end of February, while the Indian rupee has dropped 5 per cent and Indonesia’s rupiah has slipped 4 per cent.

The decline in reserves, coupled with higher costs for items such as oil, has driven down “import cover” in the region – a key metric that measures the number of months of imports a country can pay for with its currency reserves. The Philippines has seen its ratio drop to 8.2 from 9.9, while South Korea’s has declined to 6.9 from 8.2, based on calculations from BNY.

“Import cover has declined across much of Asia in recent months, largely reflecting higher import costs, particularly from energy,” said Wee Khoon Chong, Asia-Pacific macro strategist at BNY in Hong Kong. “Against this backdrop, we expect FX intervention to remain measured, especially with crude prices elevated.”

The slide in Asian currencies is compelling regional central banks to look beyond straightforward avenues such as foreign-exchange intervention. The RBI has also taken several other measures to support the rupee, including curbing speculation in the forex market by limiting banks’ daily open positions to US$100 million.

The decline in Asian reserves across Asia is making some central banks more cautious and may result in tighter monetary policy, according to Australia & New Zealand Banking Group (ANZ).

“While other measures could be deployed, ultimately more central banks in the region will need to raise interest rates to ensure inflation is kept in check and to ease depreciation pressure,” said Khoon Goh, head of Asia research at ANZ in Singapore. BLOOMBERG