Asian Currencies: Peso Falls on Inflation; Korean Won Declines

By Lilian Karunungan and Clarissa Batino

July 4 (Bloomberg) -- The Philippine peso led losses in Asian currencies this week after June inflation accelerated to the fastest in 14 years.

The peso, the worst performer in the region in the past three months, traded near the lowest since September as the government said consumer prices rose 11.4 percent last month from a year earlier, exceeding forecasts from economists and the central bank. Crude oil's advance to a record and a rally in rice prices have stoked inflation in the Southeast Asian nation.

``There's no end in sight for inflation and oil prices remain a wild card,'' said Sergio Edeza, treasurer at Rizal Commercial Banking Corp. in Manila. ``Higher commodity prices increase demand for U.S. dollars and that's hitting the peso, which also impacts on imported inflation.''

The Philippine currency fell 1.5 percent to 45.445 as of 4:12 p.m. in Manila, from 44.75 last week, according to Tullett Prebon Plc. The won fell 0.9 percent this week to 1,050.40 per dollar, according to Seoul Money Brokerage Services Ltd. The currency weakened 0.5 percent today, extending its decline this year to 10.8 percent.

The peso, which posted its biggest weekly loss since May, may weaken to as low as 47 this quarter as oil prices continue to advance, Rizal Bank's Edeza said.

Last month's inflation was the fastest since May 1994, according to data compiled by Bloomberg. Crude oil reached a record $145.85 a barrel yesterday in New York.

South Korea's won fell for a second week on speculation record crude oil prices mean refiners and importers have to buy more dollars to pay for the fuel.

Inflation Focus

The won had its lowest close since October 2005 today as oil prices above $145 a barrel push up import costs and widen the nation's trade deficit. The financial authorities bought about $7 billion of won since the end of May to help support the currency, JoongAng Ilbo newspaper reported July 1.

``The market is seeing a repeat of the pattern that oil is driving people to bid the dollar higher and the authorities emerge to stifle the attempt,'' said Ko Yun Jin, a currency dealer in Seoul at Kookmin Bank, the nation's largest lender.

Finance Minister Kang Man Soo reiterated today that the government should focus on restraining inflation at the fastest in a decade. A stronger currency reduces the cost of imports.

Top policy makers held a meeting yesterday to discuss how to curb the won's decline, Internet newswire MoneyToday reported, citing a finance ministry official it did not identity.

The currency also approached the weakest since October 2005 as overseas investors sold more local shares than they bought for a fourth week, according to data from the stock exchange. Global funds have been net sellers for the past 20 days.

Won to Rise

Korea's currency may gain in the second half of the year, as rising exports narrow the trade deficit, Samsung Electronics Co., Korean Air Lines Co. and SK Energy Co. said.

Exports typically rise in the final six months of the year as demand increases before the Christmas and New Year holidays, said Chu Woo Sik, head of investor relations at Samsung, the nation's largest exporter. The won may rise 5 percent by the end of the 2008, said Bae Yong Chul, head of the foreign-exchange department at SK Energy, South Korea's biggest oil refiner.

The three companies, with a combined market value of $102 billion, said their forecasts may be threatened if oil prices keep climbing beyond $145 a barrel, cooling global demand for Korea's exports and making fuel imports more expensive.

Malaysia's ringgit fell for a second week on concern record oil prices will stoke inflation and slow economic growth.

The currency dropped to a five-month low this week as crude oil extended gains and political risks increased amid calls for Prime Minister Abdullah Ahmad Badawi to resign. The ringgit was little changed after a government report today showed Malaysian export growth accelerated in May to the fastest pace in more than three years, led by palm oil shipments.

Growth Concern

``Inflation and growth are real concerns and it will be hard for the ringgit to perform in the short run,'' said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur. ``There are going to be humps along the way and political concerns will not fade away this year.''

The ringgit traded at 3.2660 per dollar in Kuala Lumpur versus 3.2685 late yesterday, according to data compiled by Bloomberg. The ringgit declined 0.1 percent this week, touching 3.2825 on July 2, the weakest since Jan. 24.

Consumer prices in Malaysia may rise 5 percent from a year earlier in June, the most in nine years, compared with 3.8 percent in May, Bank Negara said on June 5 when the government raised gasoline prices by 41 percent.

Export Growth

Overseas sales rose 22 percent from a year earlier to a record 60.6 billion ringgit ($18.6 billion), the Trade Ministry said in Kuala Lumpur today. The gain exceeded all forecasts in a Bloomberg survey of 17 economists where the median estimate was for a 12.5 percent increase.

Malaysian police in the past week confirmed investigations of Deputy Prime Minister Najib Razak and former Deputy Prime Minister Anwar Ibrahim. Both have called the claims against them fabrications intended to destroy their political careers.

Elsewhere, Taiwan's dollar was at NT$30.401 from NT$30.388 last week. The Singapore dollar rose 0.1 percent to S$1.3614. The Thai baht gained 0.2 percent to 33.49. The Indonesian rupiah was unchanged at 9,215, while Vietnam's dong traded at 16,846.50 compared with 16,843.00 last week.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.