Asian Currencies: Won Leads Gains After Rate Cut; Ringgit Rises

By Lilian Karunungan and Kim Kyoungwha

Dec. 11 (Bloomberg) -- South Korea’s won led gains in Asian currencies after the central bank cut its benchmark interest rate to a record low to prevent the economy from slipping into the first recession since 1998.

The won rallied to almost a one-month high after Bank of Korea Governor Lee Seong Tae and his board reduced the seven-day repurchase rate by 1 percentage point to 3 percent, the lowest level since the bank began to set a policy rate in 1999. Eight of Asia’s 10 most-active currencies rose on speculation central banks across the region will lower borrowing costs to support growth. The Malaysian ringgit and the Philippine peso also advanced.

“Aggressive rate cuts are perceived as growth-supporting policy, giving the market the assurance it’s looking for,” said Christy Tan, a currency strategist at Bank of America Corp. in Singapore. “That will support equities and will be good for currencies.”

The won rose as much as 4.8 percent to 1,330 per dollar, before trading at 1,358.50 as of the 3 p.m. close local time, according to Seoul Money Brokerage Services Ltd. The peso gained 1 percent to 47.775 in Manila, according to Tullett Prebon Plc. The peso has risen 2.7 percent since Dec. 5, paring this year’s losses to 13.6 percent.

The MSCI Asia-Pacific Index of shares climbed 1.3 percent, extending gains to a fifth day.

Preemptive Strike

“It’s a preemptive strike to guard against a recession,” said Hong Sung Koo, a bond fund manager with Daishin Securities Co. in Seoul. “The aggressive move will give a helping hand to markets reeling from the worsening prospects for the economy.”

The dollar fell to a six-week low against the euro as a bill designed to prevent the collapse of U.S. automakers met with opposition in the Senate.

The U.S. currency dropped to $1.3158 per euro, the lowest level since Oct. 30, before trading at $1.3131 in London from $1.3023 late yesterday in New York. The euro rose to 121.49 yen from 120.78 yen.

The won also gained for a fifth day after the People’s Bank of China said yesterday China, South Korea and Japan agreed to meet in 2009, starting regular consultations to ensure currency stability in Asia. The won is down 31.5 percent this year, Asia’s worst performer among the 10 most-traded regional currencies outside Japan.

“There are some hopes that sentiment for Korea is turning around with foreign investors increasing stock purchases,” said Lee Myung Hoon, a currency dealer with state-run Industrial Bank of Korea in Seoul. “It’s also positive that Korea can expand swaps further with Japan and China.”

Global funds bought more Korean shares than they sold on three of the past four trading days, according to Korea Exchange.

Philippine Peso

The Philippine peso rose for a fifth day on speculation overseas funds bought stocks in the region and Filipinos working abroad sent more money home.

“Risk appetite going back to the equities market is supporting regional currencies and in the case of the peso, there are also remittances coming in,” said Bank of America’s Tan. The peso will probably end the year “near the 48 level,” she forecast.

Bangko Sentral ng Pilipinas will probably reduce its overnight borrowing rate by a quarter-percentage point at the Dec. 18 meeting, Tan said.

Malaysia’s ringgit rose on speculation a $14 billion bailout of U.S. automakers will ease concern about global market turmoil and lift demand for riskier emerging-market assets.

The currency traded near the strongest level in a month as the rescue was passed in the U.S. House.

Dollar ‘Wobbly’

“The ringgit is rising because the dollar is a bit wobbly” with the automaker rescue plan in sight, said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “The stock-market flow may have helped but I’m skeptical it will last in the short term.”

The ringgit rose 1.7 percent to 3.5555 in Kuala Lumpur, according to data compiled by Bloomberg. The currency has dropped 7.4 percent this year, headed for its first annual loss since a fixed exchange rate to the dollar was scrapped in July 2005.

Elsewhere, Singapore’s dollar jumped 0.8 percent to S$1.4908 against the U.S. currency. The Thai baht rose 0.8 percent to 35.12 and the Taiwan dollar gained 0.4 percent to NT$33.309. The Indonesian rupiah dropped 1 percent to 11,030. Vietnam’s dong traded at 16,983 versus 16,953.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.