Asian Currencies Are Little Changed on Outlook for Inflation

By Lilian Karunungan

July 1 (Bloomberg) -- Asian currencies were little changed on speculation inflation reports in Indonesia, Thailand and South Korea will spur central banks to raise interest rates to temper rising consumer prices.

Indonesia's rupiah ended two months of losses in June before a government report today that economists say will show inflation quickened the most since September 2006. Inflation in Korea quickened to above 5 percent last month for the first time since 1998, a government report showed today. The Bank of Korea said in its semi-annual outlook today that consumer-price gains will accelerate to the fastest in a decade this year.

``If inflation numbers today come out as expected, then that sort of cements expectations that the central banks will be raising rates when they next meet,'' said Euben Paracuelles, an economist at Royal Bank of Scotland Group Plc in Singapore. ``The currencies will stay stable.''

The Indonesian rupiah traded at 9,216 per dollar as of 11:37 p.m. in Jakarta, compared with 9,226 late yesterday, according to data compiled by Bloomberg. The won was at 1,045.55 against the dollar, from 1,046 yesterday, according to Seoul Money Brokerage Services Ltd.

Central banks in Indonesia, India, Taiwan and the Philippines all raised interest rates in the past month, while policy makers in South Korea and Japan have kept borrowing costs unchanged this year.

Bank Indonesia will help strengthen the rupiah by selling dollars to help lower the import costs of fuel and food, Deputy Governor Hartadi A. Sarwono said on June 26. The central bank will raise its benchmark rate on July 3 for the third consecutive month, to 8.75 percent from 8.5 percent, according to a Bloomberg News survey of economists.

Quicker Inflation

Indonesia's inflation may have quickened to 12.58 percent in June, from 10.38 percent the prior month, according to the median estimate of a Bloomberg News survey of economists. The report is due at 2 p.m. in Jakarta.

Crude oil traded above $140 a barrel in after-hours trading in New York, almost double the amount a year ago. Indonesia left OPEC in May as aging oil fields and falling output made it a net importer of the commodity. The country imports a third of its oil needs.

The won declined 11 percent this year, the second worst performer of the 10 most-active currencies in Asia outside Japan. The Bank of Korea's comments on inflation may add to speculation it will use currency gains to contain rising prices caused by record fuel costs. Korea has bought about $7 billion of won since the end of May to increase the value of the local currency and slow inflation, JoongAng Ilbo newspaper reported today.

`Caution is High'

``The market is stuck between fears of intervention and demand for the dollar from oil-related bidders,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``The caution is high as the dollar nears the 1,050 level.'' Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Korean consumer prices gained 5.5 percent from a year earlier, up from 4.9 percent in May, the statistics office said today. Bank of Korea Governor Lee Seong Tae left the benchmark interest rate unchanged at a seven-year high of 5 percent in June. The policy-setting board next meets on July 10.

Consumer prices will climb 4.8 percent in 2008, higher than a December forecast of 3.3 percent, the bank said in its semi- annual outlook in Seoul. The economy will grow 4.6 percent this year, down from a previous prediction of 4.7 percent and 5 percent growth in 2007, it said.

Malaysia's Ringgit

Malaysia's ringgit traded near a two-week low on speculation near-record oil prices will stoke inflation and prompt consumers to cut back spending, slowing economic growth.

The nation has raised retail fuel prices seven times since May 2004 to reduce its subsidy payments, pushing inflation to a 22-month high in May.

``Inflation eats into disposable income and will likely moderate growth,'' said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. ``The perceived risk has increased.''

The ringgit traded at 3.2665 per dollar versus 3.2675 late yesterday, according to data compiled by Bloomberg. The currency weakened 2.1 percent last quarter, the first decline since the three months ended Sept. 30, 2006.

Financial markets are closed today in Thailand for a public holiday. The government will release inflation data for June at 1:30 p.m. in Bangkok.

Elsewhere, the Philippine peso rose 0.1 percent to 44.873 per dollar, according to Tullett Prebon Plc. Taiwan's dollar was little changed at NT$30.350. Singapore's dollar fell 0.1 percent to S$1.3605 and Vietnam's dong was at 16,844.50 compared with 16,842 yesterday.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
Last Updated: July 1, 2008 00:53 EDT