Bloomberg News

Asian Currencies Strengthen This Week on Rising Interest Rates

July 29, 2011

July 29 (Bloomberg) -- Asian currencies completed a second weekly gain, led by the Philippine peso and India’s rupee, on speculation the region’s growth outlook and rising interest rates will attract foreign funds.

The Bloomberg-JPMorgan Asia Dollar Index touched a 14-year high this week as India boosted borrowing costs by more than economists forecast and Bank Negara Malaysia said taming inflation is “critical,” a week after it described borrowing costs as being “quite low.” In the U.S., lawmakers continued to argue over how to tackle the nation’s debt as an Aug. 2 deadline to raise the borrowing limit looms.

“The fundamentals are still attractive in the Asian region as growth continues,” said David Cohen, a Singapore-based economist for Action Economics. “This has been contributing to the central banks’ decisions to raise interest rates, which is supportive of their currencies.”

The Philippine peso strengthened 0.6 percent this week to 42.147 per dollar as of the 4 p.m. close, according to data compiled by Bloomberg. The rupee appreciated 0.4 percent to 44.1613, Indonesia’s rupiah gained 0.3 percent to 8,503 and Singapore’s dollar climbed 0.2 percent to S$1.2049.

The Asia Dollar Index, which tracks the region’s 10 most- active currencies excluding the yen, advanced 0.1 percent this week and 0.9 percent this month, the most since April.

Asian nations need to implement policies to curb inflation even as the global economy slows, the Manila-based Asian Development Bank said in a report yesterday. The lender’s forecast for growth of 7.9 percent this year in emerging-market East Asian economies may be revised lower, according to its Asia Economic Monitor report.

U.S. Debt Concern

Asia’s emerging-market economies will expand 8.4 percent in 2011, almost quadruple the 2.2 percent growth projected for developed nations, the International Monetary Fund said last month.

The Obama administration will brief the public after financial markets close today on priorities for paying the nation’s bills if the U.S. debt limit isn’t raised, a Democratic Party official said.

“Asia is relatively more stable than Europe or the U.S. and looks safer compared with the rest of the world,” said Teck Kin Suan, an economist at United Overseas Bank Ltd. in Singapore. “That contributes to inflows to Asia.”

The peso traded near its strongest level in more than three years after Bangko Sentral ng Pilipinas said yesterday risks to its inflation forecasts remain “skewed to the upside”. The central bank remains watchful against inflation and will adjust its “policy and prudential setting as needed,” it said, citing a necessity for “caution” in monetary stance.

Indian Rate Surprise

Policy makers kept the benchmark interest rate at 4.5 percent yesterday, having announced two increases of a quarter of a percentage point earlier in the year.

The rupee climbed to its highest level in almost three years after the central bank raised interest rates this week for the fifth time this year to damp inflation. The currency touched 43.855 on July 27, the strongest since August 2008.

The Reserve Bank of India raised the repurchase rate by 50 basis points to 8 percent on July 26, double the increase forecast by most economists in a Bloomberg survey. Benchmark rates are a maximum 0.25 percent in the U.S. and Japan.

Elsewhere, Malaysia’s ringgit rose 0.1 percent this week to 2.9680. Thailand’s baht was unchanged at 29.81, China’s yuan advanced 0.15 percent to 6.4366, while Taiwan’s dollar fell 0.2 percent to NT$28.890 and South Korea’s won weakened 0.2 percent to 1,054.08.

--With assistance from Elffie Chew in Kuala Lumpur. Editors: Andrew Janes, Anil Varma

%MYR %SGD %THB %IDR %PHP %VND %KRW %CNY %HKD %TWD %INR

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Chien Mi Wong in Singapore at cwong303@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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