Asians currencies fall on inflation


Posted at Jun 05 2008 03:41 PM | Updated as of Jun 05 2008 11:41 PM


SINGAPORE - Asian currencies were weighed down by growing concerns of inflation on Thursday, as the Philippine peso fell to a 7-month low and the Thai baht hit its weakest since February against a broadly stronger dollar.

The Philippine peso fell below a psychologically significant level of 44-per-dollar to 44.10 on Thursday, its weakest since late October last year, after the country's annual inflation in May rose to a nine-year high of 9.6 percent.

Traders in Manila said the Philippine central bank was seen selling dollars to support the peso, which held steady at 44.10.

The central bank is due to review its interest rate policy later on Thursday. Economists polled by Reuters were evenly divided over whether the central bank would raise rates or leave them on hold.

"Higher inflation is pressuring the peso exchange rate right now, and it is also pressuring the central bank to address the inflation pressures," a trader in Manila said.

"All eyes will be on the central bank's action later," he said.

The Thai baht fell 0.8 percent to a near 4-month low of 32.85, while the Malaysian ringgit fell by a similar margin to 3.2660, its lowest since mid-May.

Malaysia and India separately announced fuel price increases on Wednesday in a move to reduce subsidies, which fanned fears of the inflationary impact on economic growth in these countries and contributed to the sale of local currencies.

Analysts at ING said they expected Malaysia to raise interest rates by 25 basis points at the central bank's July policy review in light of a ballooning rate of rises in consumer prices, while they expected the ringgit to remain firm in the meantime.

The dollar rose against the euro and other major currencies, extending its gains made the previous day after the Federal Reserve chief Ben Bernanke emphasized inflation concerns, reinforcing views the central bank is done with cutting rates.

Both the Singapore dollar and the Taiwan dollar, two currencies in Asia which investors are bullish about, fell by 0.4 percent each, with the Singapore currency inching down to a 2-1/2-week low of 1.3710 per U.S. dollar.

The Indonesian rupiah fell by a fifth of a percent to 9,325 per dollar. A policy decision from the central bank is due later on Thursday, with most analysts expecting a rate hike of 50 basis points to 8.75 percent.
"Further upside to inflation remains likely, and we retain our expectation for BI (central bank) to move against inflation," analysts at JPMorgan said in a research note.