Asian Currencies: Rupiah, Peso Drop on Growth; Korean Won Gains

By Kim Kyoungwha

Nov. 7 (Bloomberg) -- Indonesia's rupiah and the Philippine peso led declines in Asian currencies as the prospect of a global recession encouraged investors to seek safer investments.

Seven of the 10 most-active currencies in Asia excluding the yen declined after the International Monetary Fund yesterday predicted the first simultaneous recession in the U.S., Japan and the euro region in the post-World War II era. The rupiah headed for a third weekly drop. South Korea's won reversed earlier losses as local stocks rebounded after the central bank delivered the third interest-rate reduction in a month.

``Asian currencies were pumped up by equity inflows in recent years so they come under pressure when it reverses,'' said Sean Callow, a currency strategist with Westpac Banking Corp. in Sydney. ``Investors tend to assume that all of Asia is totally exports-dependent so the IMF forecasting recession adds to the gloom.''

The rupiah fell 2 percent to 11,163 per dollar as of 12:44 p.m. in Jakarta, from 10,938 late yesterday, according to data compiled by Bloomberg. It's set for a 1.7 percent drop this week. Singapore's dollar and the peso slipped 0.6 percent to S$1.4927 and 48.795.

The MSCI Asia Pacific Index slid 1.5 percent, extending yesterday's 6 percent decline.

``Investors are focusing back on fundamentals, which means earnings are going to disappoint and stocks are going to trade lower,'' said Lam Chee Mun, who oversees $200 million as an investment manager at TA Investment Management in Kuala Lumpur. ``This will be a drag on currencies.''

Rate Cuts

The yen rose 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 yesterday 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 climbed to 122.48 versus the euro before trading at 124.18, versus 124.29 late yesterday in New York. It also climbed to 152.58 per pound from 152.75.

The Korean won surged as much 3.7 percent after central bank Governor Lee Seong Tae cut the benchmark interest rate by a quarter-percentage point to 4 percent and reassured investors that policy makers are focused on keeping the economy ``from weakening too much.'' The benchmark Kospi index of shares gained as much as 4.9 percent.

Growth Forecast

``The stock market is heartened by the central bank's rate cut, which in turn is giving a lift to the won along with some exporter dollar sales,'' said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. ``Still, the market is open to both upside and downside given high volatility.''

The won is still Asia's worst performer this year, with a 29 percent loss, as overseas investors pulled $36.5 billion out of Korean equities.

Growth in developing Asia may slow to 7.1 percent in 2009, after a projected expansion of 8.3 percent this year, the IMF said yesterday. Central banks in China, Hong Kong, India, Japan, South Korea, Taiwan and Vietnam have all announced interest-rate cuts since the start of last week to bolster their economies.

The Philippine peso dropped as much as 0.8 percent to 48.875 a dollar, the lowest since Nov. 3, according to Tullett Prebon Plc. The Malaysian ringgit weakened 0.4 percent to 3.5547, Bloomberg data show.

``The threat of a global recession is becoming a reality,'' said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp. in Manila. ``Funds are unwinding positions and risky assets like those in the Philippines will be left behind.''

Elsewhere, Taiwan's dollar was little changed at NT$32.804 against the U.S. currency and the Indian rupee fell 0.2 percent to 47.76. The Vietnamese dong dropped 0.7 percent to 16,949 after the central bank widened the daily trading band for the currency to 3 percent from 2 percent.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.