Asian Currencies: Ringgit, Baht Drop on Policy; Rupiah Advances

By David Yong and Shanthy Nambiar

June 25 (Bloomberg) -- Malaysia's ringgit fell, leading declines in Asian currencies, on concern investors will sell local assets as the region's central banks delay raising interest rates.

The currency headed for a loss this quarter as Bank Negara Malaysia said this month that altering its interest-rate policy for the first time since April 2006 may not address higher prices even as this month's fuel-price increase threatens to push inflation to a nine-year high. South Korea's won dropped after consumer confidence slumped to the lowest since the end of 2000 as higher food and energy bills eroded household incomes.

Malaysia's central bank ``will have to come in and hike or risk being behind the curve,'' said Chia Woon Khien, a Singapore-based strategist at Royal Bank of Scotland Plc. ``In some cases like Malaysia, the bond market has sold off,'' weakening the currency, she said.

The ringgit slid 0.3 percent to 3.2635 per dollar as of 11:39 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has declined 2 percent this quarter, the first such drop since September 2006. The won fell 0.2 percent to 1,035.25, down 4.2 percent this quarter.

Bank Negara has kept its overnight policy rate unchanged at 3.5 percent in 16 straight meetings since April 2006. Governor Zeti Akhtar Aziz said on June 16 it doesn't plan to review its interest rates until policy makers next meet on July 25.

Malaysia's 10-year bonds fell yesterday, extending a six- week slump that pushed yields to 4.95 percent, the highest since July 2006, according to Bloomberg data. The Kuala Lumpur Composite Index of shares has lost 17 percent this year.

Confidence Slump

Elsewhere, Taiwan's dollar gained 0.1 percent to NT$30.397 against the U.S. currency, the Singapore dollar weakened 0.1 percent to S$1.3684 and the Philippine peso was little changed at 44.56.

The won extended this year's loss to 10 percent, making it the second-worst performer among Asia's 10 most-traded currencies outside Japan. The consumer sentiment index dropped to 86 in the second quarter, from 105 in the previous three months, the Bank of Korea said today in Seoul. A reading of less than 100 indicates pessimists outnumber optimists.

``The near-term risk is skewed to the upside for the dollar given won-bearish factors such as rising oil prices and monetary policy uncertainties,'' said Oh Suk Tae, an economist with Citigroup Inc. in Seoul.

The Bank of Korea Governor kept its benchmark repurchase rate at a seven-year high of 5 percent on June 12. Price gains will exceed the seven-year high of 4.9 percent recorded in May, Finance Minister Kang Man Soo said today.

India yesterday raised interest rates for the second time in two weeks to slow inflation from a 13-year high. Policy makers in Indonesia, the Philippines and Pakistan have lifted borrowing costs in the past month as oil prices almost doubled to $137 per barrel in the past year.

Thai Delay

Thailand's baht fell for a third day to 33.55 per dollar, taking this quarter's decline to 6.1 percent, on concern the Bank of Thailand's delay in raising borrowing costs will add to currency losses and import costs.

The currency is the worst performer in the region this year as the central bank held its one-day bond repurchase rate at 3.25 percent since August. Inflation more than doubled this year to 7.6 percent in May while the nation's current account slipped in May into the first deficit in 21 months.

`Preemptively Hiking Rates'

``The central bank should be preemptively hiking rates to anchor inflationary expectations,'' Sin Beng Ong, JPMorgan Chase & Co.'s Singapore-based economist, wrote in a client note yesterday. ``The risk is that inflation expectations and the price setting mechanism could quickly become unseated in an environment where the weakening balance of payments will likely lead to a weakening currency.''

Indonesia's rupiah rose 0.1 percent to a six-week high of 9,250 on speculation the central bank will buy the currency to help lower the cost of oil imports. Central banks intervene in the market by arranging purchases or sales of foreign exchange.

Bank Indonesia is ``still cautious about the oil price movement,'' said Enrico Tanuwidjaja, an economist at Oversea- Chinese Banking Corp. in Singapore. ``They're trying to get the rupiah stronger to bring it back to 9,250.''

A government report next week will show inflation in Southeast Asia's biggest economy accelerated in June at the fastest pace in 21 months, according to economists in a Bloomberg survey.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net