Morgan Stanley Is `Modestly Bullish' on Philippine Peso, Rupiah

By Lilian Karunungan

July 23 (Bloomberg) -- Morgan Stanley said it has turned ``modestly bullish'' on the Philippine peso and the Indonesia rupiah after their central banks raised interest rates in the past months to tame inflation.

``With monetary policy `normalizing', the balance of fundamentals is tilting back to a more supportive position for the Philippine peso and the Indonesian rupiah,'' wrote Stewart Newnham, Hong Kong-based research analyst at Morgan Stanley, the second-biggest U.S. securities firm by market value. He confirmed the research report sent to clients today.

The Philippine peso is set for its first monthly gain since February after the Bangko Sentral ng Pilipinas raised its overnight rate to 5.75 percent from 5 percent since June after inflation quickened to a 14-year high of 11.4 percent last month. The peso rose 1.3 percent to 44.03 against the U.S. currency as of 2:54 p.m. in Manila, according to Tullett Prebon Plc.

Indonesia's rupiah has risen 1.4 percent in the past month, making it the second-best performing among 10 Asian currencies outside Japan tracked by Bloomberg. It gained 0.1 percent to 9,146 against the dollar.

Bank Indonesia has increased borrowing costs to 8.75 percent from 8 percent starting May to slow inflation, which accelerated at its fastest pace in 21 months in June. The central bank is seeking to stabilize the rupiah to help slow inflation, central bank Director Made Sukada said yesterday.

``We believe the weak monetary policy response to inflation has been the Achilles' heel that has undermined the overall fundamentals of their currencies,'' Newnham said.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net