Asian Currencies: Ringgit Advances on Intervention Speculation

By Lilian Karunungan and David Yong

July 3 (Bloomberg) -- Asian currencies advanced, led by Malaysia's ringgit and Singapore's dollar, on speculation central banks will buy their own currencies to help lower import costs and stem inflation.

Five of the 10 most-active Asian currencies outside of Japan rose against the dollar after the U.S. currency traded near a two-month low against the euro. The dollar weakened as economists forecast the European Central Bank will raise its main refinancing rate by a quarter-percentage point and U.S. payrolls will drop for a sixth month. Crude oil's advance to a record today stoked concern fuel prices will add to inflation.

``It's a combination of central bank intervention threat and broad dollar weakness that is helping to take a bit off the pressure'' on Asian currencies, said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

The ringgit traded at 3.2660 per dollar as of 12:34 p.m. in Kuala Lumpur versus 3.2730 late yesterday, according to data compiled by Bloomberg. The Singapore dollar rose as much as 0.1 percent to S$1.3573.

The Malaysian currency yesterday slipped to a five-month low on concern inflation approaching the fastest in nine years will curb consumer spending and crimp economic growth.

Bolstering Currencies

Higher oil prices and heightened risk aversion may lead regional central banks to bolster their currencies, Singapore's Oversea-Chinese Banking Corp. said in a report today.

``There isn't a lot of room for Malaysia's central bank to raise interest rates, so there's some need for a stronger currency,'' said Gundy Cahyadi, an economist at Ideaglobal in Singapore. ``They may not want to allow the ringgit to weaken excessively, especially if it's only driven by bad sentiment.''

The ringgit slumped 2.1 percent in the three months through June, snapping a six-quarter winning streak. Consumer prices may rise 5 percent in June, after gaining 3.8 percent in May, Bank Negara Malaysia said on June 5, when the government raised gasoline prices by 41 percent. That was the steepest of seven fuel-price increases since May 2004.

Bank Negara has kept its overnight policy rate at 3.5 percent since April 2006. Policy makers next meet on July 25.

Raising Rates

Indonesia's rupiah traded near a two-month high on speculation the central bank wants a stronger currency to lower import costs as crude oil rose to a record.

The currency is the biggest gainer in the region over the past month as the central bank pledged to use all monetary tools, including the exchange rate, to temper prices. Economists forecast Bank Indonesia will raise its benchmark interest rate today for the third time this year after inflation accelerated to a 21-month high.

``The downside in the rupiah is being capped by agent banks'' representing the central bank, said Joanna Tan, an economist and foreign-exchange strategist at Forecast Singapore Pte Ltd. ``Oil prices are still a factor to consider.''

The currency traded unchanged at 9,215 per dollar in Jakarta, according to data compiled by Bloomberg. The rupiah may trade between 9,200 and 9,240 for the rest of this week, Tan said.

The central bank will raise its overnight rate by a quarter-percentage point to 8.75 percent today, according to the median estimate of economists in a Bloomberg News survey.

Consumer-price gains quickened to 11 percent in June, from 10.4 percent the previous month, after the government reduced fuel subsidies in May.

Outflows

The Philippine peso fell for a fifth day on concern record oil prices will stoke inflation and keep it above 10 percent for the rest of the year.

The currency traded near a nine-month low against the dollar after the central bank yesterday said inflation will peak in the third quarter before easing to single-digit levels next year. ``There are already indications that supply driven pressures are beginning to feed into demand,'' Governor Amando Tetangco said.

``The underlying support for the peso has weakened substantially as the country pays more for its imports and stocks are seeing a lot of outflows,'' said Irene Cheung, a strategist at ABN Amro Bank NV in Singapore. ``Inflation will potentially go up and chances are, the central bank won't tighten as much.''

The peso weakened 0.2 percent to 45.29 per dollar in Manila, according to Tullett Prebon Plc. The currency may fall to 46.50 this quarter, Cheung said.

Rice, Oil, Inflation

Record rice and oil prices pushed the inflation rate to a nine-year high in May and prompted the central bank to raise interest rates for the first time since October 2005 last month. Inflation quickened to 10 percent in June, according to a Bloomberg News survey of economists before the government report tomorrow. The forecast is slower than the central bank's estimate of as high as 11.2 percent.

``The peso's weakening isn't helping'' to tame inflation Cheung said. The central bank next meets to review interest rates on July 17.

Elsewhere, the Thai baht declined 0.1 percent to 33.36 against the dollar and South Korea's won dropped 0.2 percent to 1,037.85. Taiwan's dollar traded little changed at NT$30.40 versus NT$30.372 yesterday, while Vietnam's dong traded at 16,846 compared with 16,846.50 yesterday.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.