Asian Currencies: Ringgit Falls on Rate Policy, Won Leads Gain

By David Yong and Kim Kyoungwha

July 28 (Bloomberg) -- Malaysia's ringgit fell, leading losses in Asian currencies, after the central bank unexpectedly refrained from raising interest rates amid the fastest inflation in 26 years.

Bank Negara Malaysia on July 25 kept its overnight policy rate at 3.5 percent for an 18th straight meeting, citing increased risks to the economy. Fourteen of 20 economists had expected an increase to 3.75 percent before the decision was announced after the market closed. South Korea's won gained after the nation's current-account posted its first current- account surplus in seven months.

``The sell-off reflects the market's disappointment with the decision,'' said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. ``This will increase the likelihood that they will spend some reserves to defend the currency.''

The ringgit traded near a three-week low of 3.2650 per dollar as of 12:34 p.m. in Kuala Lumpur after falling as much as 0.5 percent to 3.2675, according to data compiled by Bloomberg. The won climbed as much as 0.4 percent to 1,005.25, according to Seoul Money Brokerages Ltd.

Half of Asia's 10 most-traded currencies outside Japan fell as the dollar extended its gain after the U.S. Congress passed legislation to stem foreclosures and prop up Fannie Mae and Freddie Mac.

``While both the risks to higher inflation and the risks to slower growth have increased, the immediate concern is to avoid a fundamental economic slowdown,'' Bank Negara Malaysia said in the statement. ``The appropriate monetary policy response will be taken'' should price increases spread beyond food and fuel.

Current-Account Surplus

The won has risen 4.1 percent this month, halting monthly declines since February, as policy makers supported its own currency after inflation accelerated 5.5 percent in June, the fastest in a decade.

``The atmosphere is turning favorable for the won,'' said Ko Yun Jin, a dealer in Seoul at Kookmin Bank, the nation's largest bank. ``Month-end export settlements may give an additional boost to the currency.''

South Korea had a current-account surplus of $1.82 billion for June, versus a $378 million deficit in May, the Bank of Korea said in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income.

The government this month forecast a trade surplus of $3.8 billion in the second half of 2008, led by exports to China. It had a trade deficit of $5.7 billion in the first six months.

Central banks intervene in currency markets by arranging sales or purchase of foreign exchange. A stronger won helps lower import costs and tempers inflation.

Thai Risks

Thailand's baht fell 0.1 percent to 33.44 in Bangkok on concern that slowing economic growth and a court case will undermine Finance Minister Surapong Suebwonglee, raising political risks and deterring investors.

Surapong is among three current ministers who also served in former premier Thaksin Shinawatra's cabinet who are facing a lawsuit alleging wrongdoing in the creation of a state-run lottery in 2003. Thailand's Supreme Court accepted the lawsuit, state-controlled Channel 9 television reported today, without saying where it got the information from.

`Hostage to Politics'

``The market remains a hostage to politics,'' said Sompob Asavaritikrai, head of trading at Bank of Ayudhya Pcl in Bangkok. ``If the court rules it will take the case, it will create more political uncertainty. It will hurt investor confidence. It is going to be negative for Thai stocks and the baht.''

Indonesia's rupiah rose 0.1 percent to near a two-week high of 9,113 per dollar on speculation the central bank will raise interest rates for a fourth time next month to temper the fastest inflation in 21 months.

Consumer prices probably rose in July at an annual pace of 11.1 percent, according to the median forecast in a Bloomberg News survey, versus 11 percent in June. The report is due on Aug. 1 while monetary policy makers will meet four days later.

``The bias for the dollar against the rupiah is downwards barring further worsening in the global environment,'' said Christy Tan, a senior currency strategist at Bank of America Corp. in Singapore. ``If they continue to tighten monetary policy and if oil prices come off to a more comfortable level, the scope for the dollar to fall below 9,100 rupiah is very real.''

Elsewhere, the Singapore dollar declined 0.4 percent to S$1.3639 while Vietnam's dong gained 0.1 percent to 16,780. The Philippine peso was little changed at 44.04 against the U.S. currency.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.