Asian Currencies: Indian Rupee Leads Weekly Gains on Fund Flows

By Judy Chen and Anil Varma

Nov. 8 (Bloomberg) -- India's rupee led gains in Asian currencies, completing its best week in 12 years, on signs overseas funds are returning to buy local assets aided by cuts in borrowing costs by global central banks.

Seven of the 10 most-active currencies in Asia excluding the yen strengthened this week as the MSCI Asia Pacific Index rose 1.2 percent, extending last week's 6 percent advance. Indonesia's rupiah ended two weeks of losses after Standard & Poor's maintained its stable outlook on the nation's debt rating. Foreign investors bought $441 million more Indian shares than they sold in the five days through Nov. 6.

``The outlook for equities is much better than what it was at the peak of the global credit crisis,'' said K.V. Mallik, treasurer at state-owned UCO Bank in Kolkata. ``The climate for investments will improve soon and will help the rupee.''

The rupee climbed 3.8 percent 47.66 a dollar in Mumbai, from 49.4575 on Oct. 31, according to data compiled by Bloomberg. That is the biggest weekly gain since March 1996. Thailand's baht and the Philippine peso strengthened 0.3 percent to 34.96 and 48.81 respectively in the week.

Rate Cuts

The market value of equities worldwide increased to $31.8 trillion on Nov. 6, from $29.4 trillion reached on Oct. 27, the lowest since 2003, Bloomberg data show. Central banks in the U.K., Europe, Australia, South Korea and India added to last month's interest-rate reductions, helping stocks rebound.

The yen headed for weekly gains against the euro and the British pound on speculation global interest-rate cuts will make it less attractive to purchase overseas assets using funds from Japan.

European Central Bank President Jean-Claude Trichet said policy makers may lower rates further after cutting the main refinancing rate by a half-percentage point on Nov. 6 to 3.25 percent. The Bank of England slashed its key rate by 1.5 percentage points to 3 percent, the biggest reduction since 1992. Japan's benchmark rate is 0.3 percent.

The yen rose to 124.46 versus the euro in London from 125.30 at the end of last week. It climbed to 153.87 versus the pound, from 158.28 last week. The Japanese currency rose against the dollar, trading at 97.50 versus 98.46 last week.

Indonesia's rupiah reversed yesterday's losses to end the week stronger after the central bank said consumer prices are under control and that it would meet its year-end inflation target. The government will reduce gasoline prices by 8.3 percent from Dec. 1 and introduce monthly adjustments as global crude oil prices decline.

Stable Outlook

S&P affirmed its BB- rating on Indonesia's foreign-currency debt, citing falling debt levels and a narrowing deficit.

``The stable outlook helped,'' said Emanuel Kurniawan, head of foreign-exchange trading at PT Bank CIMB Niaga in Jakarta. ``The government can handle inflation,'' he said.

The rupiah rose 0.7 percent to 10,900 a dollar, from 10,975 a week earlier, Bloomberg data show.

Taiwan's dollar gained for a second week, the longest winning streak in more than three months, after Taiwan and China agreed this week to boost the number of direct flights across the Taiwan Strait and establish shipping links.

``It's difficult to see further weakening in the Taiwan dollar,'' said Daniel Soh, an economist at Forecast Pte in Singapore. ``The cross-strait policy measures will provide some support to the currency, as this is positive to the economies on both sides.''

The currency rose 0.5 percent to NT$32.824 against the dollar, from NT$33 on Oct. 31, according to Taipei Forex Inc.

Worst Performer

South Korea's won declined 2.8 percent this week to 1,328.80 per dollar, taking this year's loss to 30 percent, the worst performance among the 10 most-traded Asian currencies outside Japan.

Demand for the won has weakened as overseas investors pulled $36.5 billion out of Korean equities this year, according to data compiled by Bloomberg. The Kospi stock index has fallen 40 percent in 2008, heading for its worst year since 2002.

Korea's currency gained 0.2 percent yesterday, as local stocks rebounded after the central bank delivered its third interest-rate reduction in a month to support Asia's fourth- largest economy.

The Bank of Korea cut the benchmark rate to 4 percent, the lowest since 2006. The Kospi stock index soared 3.9 percent after sliding as much as 4.9 percent.

Elsewhere, the Vietnamese dong dropped 0.9 percent this week to 16,984 against the dollar after the central bank widened the daily trading band for the currency to 3 percent from 2 percent. The Malaysian ringgit weakened 0.2 percent to 3.5520.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Anil Varma in Mumbai at avarma3@bloomberg.net