MUMBAI/JAKARTA India's rupee crashed to a record low and the Indonesian rupiah hit a 4-year trough on Monday, as the expected withdrawal of U.S. monetary stimulus prompts investors to shun emerging markets burdened by weak external balances, slowing economies and inflation.
It followed a slide on Friday in Brazil's real, a currency that, like the rupee, has been hammered by investor doubts that actions taken by monetary authorities last week will prove effective in stemming the sell-off.
"Our primary concern is that the policy authorities still don't 'get it' - thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions," Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore, wrote in a note on the Indian currency on Monday.
Growing expectations that the U.S. Federal Reserve will start scaling back its bond purchases as early as next month, slowing the flow of cheap money into higher yielding overseas assets, have weighed on many emerging markets.
The currencies of countries already struggling with wide current account deficits, such as India and Indonesia, are seen as among the most vulnerable to sudden capital flight and have been hit hardest.
"The market is still acting on the negative current account and fiscal deficits," said Nizam Idris, a strategist with Macquarie Capital, when asked about the two Asian laggards.
The latest blow for Indonesia's currency was delivered by central bank data released late on Friday that showed the current account deficit grew to 4.4 percent of GDP in the second quarter of the year, from 2.4 percent in the previous quarter.
"Although the current level of reserves is still equivalent to a reasonably healthy 5.5 months of imports, the Bank can't continue to burn reserves at the current rate without the market worrying about a 'crisis' scenario unfolding," Credit Suisse said in a note.
Indonesia's Finance Minister Chatib Basri said he was not worried by the rupiah weakness and predicted the current account deficit, though it would remain into next year, would narrow.
Some analysts predicted the weakness could ripple out to other Asian markets, with Malaysia's current account data due on Wednesday likely to be closely watched.
India's tumbling currency has been the worst performer in Asia since late May, when the Fed first signaled that it may begin "tapering" its monetary stimulus this year.
Indian policymakers are grappling with a record current account deficit at 4.8 percent of GDP - and market participants aren't convinced the government can reduce the gap to a targeted 3.7 percent this financial year.
The Reserve Bank of India (RBI) has been selling dollars to support the rupee and last week announced curbs on outflows from companies and individuals, denting stock and bond markets.
"Forex intervention will continue by the central bank," said Param Sarma, chief executive at Brokerage NSP Forex. "Further measures are expected from the RBI but are unlikely to be effective."
Brazil's central bank has also intervened to try and reassure investors, but could not prevent the real from sinking on Friday to its lowest level since the depths of the global financial crisis in 2009.
The real's poor record during previous bouts of market volatility and its steep gains over the past decade are some of the reasons why it is now seen as a risky trade - a "high beta" currency in the jargon of the foreign exchange markets.
Domestic concerns have also made things worse.
As with India, a previously fast-growing economy has slowed, disappointing investors. Also, like Indonesia, a cooling in China's appetite for its commodities exports has resulted in a sharp deterioration in its balance of trade.
(Additional reporting by Jongwoo Cheon and Vidya Ranganathan in Singapore and Walter Brandimarte and Tiago Pariz in Rio de Janeiro; Writing by Alex Richardson; Editing by Richard Borsuk)