SINGAPORE, Dec 18 — The Indonesian rupiah fell half a per cent to its lowest levels since 2008 against the dollar today, losing the most in Asia as investors cut positions just hours before the Federal Reserve ends a policy meeting that could decide when and how fast US monetary policy will be tightened.

The rupiah, deemed Asia’s most vulnerable to a turn in the Fed’s five-year quantitative easing policy because of Indonesia’s dependence on foreign portfolio flows, fell to a low of 12,175 per dollar, according to Thomson Reuters data.

The relatively lower volatility in offshore rupiah non-deliverable forwards suggested domestic factors were driving the weakness in the rupiah, which is Asia’s weakest currency this year with losses of more than 20 per cent.

Trading onshore was characterised by a lack of liquidity and a dearth of dollar supply as market participants positioned for further rupiah weakness. The country’s vice finance minister said the economy should brace for a weaker currency.

“Indonesians cannot expect 1 dollar at 9,000 rupiah like in 2011,” Bambang Brodjonegoro told a conference in Seoul. “It is hard, but of course, currency should reflect economic fundamentals of Indonesia.”

The Thai baht was also among Asia’s worst performers today, falling nearly half a per cent as anti-government demonstrators said they would step up their protests. The risk that the opposition Democrat party will boycott the February snap elections called by Prime Minister Yingluck Shinawatra could prolong the currency’s underperformance.

Overall, it was a case of underperformance by Southeast Asian currencies such as the baht, rupiah and Philippine peso as market participants waited for the Fed to indicate the timeline for scaling back its monetary stimulus.

The odds still point to no major policy change when the Fed ends its December 17-18 meeting. But most of the recent US domestic economic data suggests the beginning of the end of the Fed’s massive bond-buying programme is coming sooner than later, and today’s meeting could end some of the uncertainty over the timing and scale of stimulus-tapering.

“Whether the Fed takes its foot off the QE pedal tonight or in January is probably a moot point, as the bottom line is that tapering is very much going to happen and markets will need to adjust sooner rather than later,” Credit Agricole’s head of currency strategy Mitul Kotecha said in a note.

“Asian currency direction will be limited ahead of the Fed outcome too although lower US yields will give some relief. Overall, it remains a case of Southeast Asian FX underperformance versus Northeast Asia outperformance.”

The Indian rupee gained, however, rising a quarter of a per cent after the country’s central bank refrained from raising rates at a policy review today to rein in high inflation, citing weakening growth and an improving external balance sheet. — Reuters