Asian Currencies Decline, Led by Won, Rupiah as Crisis Deepens

By David Yong and Kim Kyoungwha

Oct. 6 (Bloomberg) -- Asian currencies declined, with South Korea's won falling to the lowest level since 2002, on concern that a deepening global credit crunch will create funding shortages for the region's banks and manufacturers.

The won extended this year's loss to 26 percent, the world's worst-performing major currency, as the Bank of Korea asked local banks to sell overseas assets in order to raise money and spur lending. Indonesia's rupiah slumped to the weakest since August 2007 and the Philippine peso traded near a 17-month low after investors sold stocks on speculation tighter credit will exacerbate a global slowdown and damp demand for Asian exports.

``Bids for the dollar remain very strong,'' said Ko Yun Jin, a currency dealer in Seoul at Kookmin Bank, Korea's largest lender. ``Market players are worried that the credit crisis is spreading.''

The won plunged 4 percent to 1,272.70 against the dollar as of 1:52 p.m. local time, according to Seoul Money Brokerage Services Ltd. The rupiah dropped 1.5 percent to 9,570 and the peso lost 0.7 percent to 47.39.

The won fell as low as 1,292.50, prompting the central bank to buy its own currency, said Lee Myung Hoon, a foreign-exchange dealer in Seoul at Industrial Bank of Korea Ltd. Local banks should not ``hold on to too much foreign currency reserves'' as this may reduce trade financing, Finance Minister Kang Man Soo said in Seoul.

The MSCI Asia Pacific Index of regional stocks slumped 3.6 percent, headed for the lowest close since July 2005. The global credit crunch deepened in Europe as government leaders pledged to bail out troubled banks and protect depositors.

European Banks

The rupiah dropped by the most in almost a year after the government said yesterday the credit crisis is hurting exports and may affect gross domestic product.

U.S. lawmakers approved a $700 billion rescue package for the banking system and BNP Paribas SA said it will take control of Fortis's units in Belgium and Luxembourg. Germany's government and financial institutions agreed on a 50 billion euro ($68 billion bailout for Hypo Real Estate Holding AG.

``Risk aversion is still high and that's not good for the rupiah,'' said Gundy Cahyadi, an economist at IDEAglobal in Singapore. ``The market is pretty much concerned about whether the bailout will save the U.S. economy.'' Markets in Indonesia were closed Sept. 30 to Oct. 3 for public holidays.

The Philippine peso fell by the most in five weeks to the lowest since May 2007 before a central bank meeting today, when policy makers are expected to keep interest rates unchanged at 6 percent. The government on Oct. 2 cut its 2008 growth target to 4.4 percent, compared with a 7.2 percent expansion last year.

``There's credit concern in Europe and we're continuing to see risk aversion here and in most parts of the region, said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila.

Export Outlook

Malaysia's ringgit fell for a third day to trade at the lowest since September 2007 before a government report this week that may show exports grew in August at the slowest pace in five months.

``Global investors are concerned about the strength of Asian economies and it's quite natural to see the currencies, including the ringgit depreciate,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``It's still a question if the crisis will spread to Asia, but for now, investors are selling local assets for U.S. dollars.''

The ringgit declined 0.4 percent to 3.4840 per dollar, according to data compiled by Bloomberg. The currency weakened 1 percent last week, the biggest drop in a month.

Exports grew 16.5 percent in August from a year earlier, versus 25.4 percent in July, according to the median forecast in a Bloomberg survey of nine economists. The trade ministry will report on Oct. 8. The U.S. and European Union accounted for 23 percent of Malaysian exports in July, the ministry said.

Elsewhere, the Thai baht dropped 0.5 percent to 34.37 per dollar and the Singapore dollar weakened 0.8 percent to S$1.4615. Taiwan's dollar lost 0.4 percent to NT$32.315 and the Vietnamese dong was unchanged at 16,600.

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