Bloomberg News

Rupee Leads Asia Currency Gains on Reduction in Reserve Ratio

January 24, 2012

Jan. 24 (Bloomberg) -- India’s rupee led gains in Asian currencies as the central bank unexpectedly lowered the cash- reserve requirement for lenders for the first time since 2009 and signaled future interest-rate cuts to support growth.

The rupee appreciated past 50 a dollar, a level last breached in November, as the Reserve Bank of India reduced the amount of funds banks must set aside as reserves to 5.5 percent from 6 percent, while keeping the benchmark rate unchanged. Indonesia, the Philippines and Thailand have all cut borrowing costs to spur their economies amid Europe’s debt crisis.

“Asian central banks are taking steps to prop up growth and support their economies and currencies,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “Developments in Europe will be a key determining factor on the outlook.”

The rupee advanced as much as 0.3 percent to 49.9250 per dollar, the strongest level since Nov. 14, and traded at 49.9750 as of 2:25 p.m. in Mumbai, according to data compiled by Bloomberg. The Philippine peso rose 0.2 percent to 43.17 and Indonesia’s rupiah declined 0.5 percent to 8,990.

Onshore financial markets were closed in China, Hong Kong, Taiwan, Singapore, South Korea and Malaysia for the Chinese New Year holiday.

International investors boosted holdings of Indian debt by $3.4 billion this month through Jan. 20 to $29.4 billion and investments in stocks rose $1.4 billion, exchange data show.

Policy makers left borrowing costs at 8.5 percent, as predicted by all 21 economists in a Bloomberg News survey. Economic growth is weakening more than anticipated and inflation remains “high” as the rupee’s 9 percent loss in the past 12 months threatens to push up prices, the central bank said yesterday.

Importer Demand

Thailand’s baht declined, retreating from its strongest level in almost three weeks, on speculation importers increased demand for the dollar to take advantage of the more favorable exchange rate.

The currency slipped 0.1 percent to 31.44 per dollar. It advanced 1.7 percent in the last five days as global funds bought $1.5 billion more of the nation’s bonds than they sold in seven days of net purchases through yesterday, according to the Thai Bond Market Association. Official data last week showed imports climbed 19.1 percent in December from a year earlier after sliding 2.4 percent the previous month.

“Importers are likely to buy the dollar today because it’s a lot cheaper than last week,” said Norawit Suparinayok, a foreign-exchange trader at Bangkok Bank Pcl. “Many people expect the dollar’s weakness will be short-lived amid the lingering European debt crisis. It’s a good opportunity to buy the dollar at the current level.”

No Intervention

Indonesia’s rupiah fell, snapping a four-day gain, on speculation the central bank refrained from intervening to support the currency after it gained by the most in two years last week.

Bank Indonesia hasn’t been in the market today, according to Wiling Bolung, head of treasury at ANZ Panin Bank in Jakarta. The rupiah appreciated 1.5 percent last week on optimism a credit-rating upgrade by Moody’s Investors Service will boost demand for Indonesian assets.

“Bank Indonesia is always monitoring the market and it will come in when it thinks it’s the right time,” Bolung said. “It will be a quiet day today because of the holidays.”

--With assistance from Khalid Qayum in Singapore. Editors: Simon Harvey, Andrew Janes

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

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

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


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