Rupee Leads Declines as Asian Currencies Slide on Faltering Growth, Europe

By Andrea Wong, Jeanette Rodrigues and Yumi Teso - Oct 22, 2011 6:48 AM GMT+0700

Asian currencies completed the worst week in a month, led by India’s rupee, as concern the region’s economic growth is faltering prompted global funds to withdraw cash.

Data this week showed China’s gross domestic product rose at the slowest pace in two years. Bank of Thailand Governor Prasarn Trairatvorakul said Oct. 20 the Thai economy may contract this quarter as the worst floods in five decades disrupt production. The Bloomberg-JPMorgan Asia Dollar Index fell 0.4 percent, the first decline since the week ended Sept. 30, before Europe’s finance ministers meet in Brussels tomorrow. The rupee fell past 50 per dollar for the first time since 2009.

“Growth outlook has weakened and inflation remains stubbornly high” in the region, said Jonathan Cavenagh, a Singapore-based senior currency strategist at Westpac Banking Corp. “European investors had invested a lot of capital in Asia when the 2008 financial crisis eased and now there is concern they will pull this back to the continent.”

The rupee slumped 2 percent this week to 50.0250 per dollar in Mumbai and touched 50.3238 earlier, the weakest level since April 2009. Thailand’s baht retreated 0.7 percent to 31.01, and Malaysia’s ringgit lost 0.6 percent to 3.1498.

The MSCI Asia-Pacific Index of regional shares slipped 0.7 percent this week as foreign investors sold $319 million more Indonesian, South Korean, Taiwanese, and Thai stocks than they bought yesterday, according to exchange data.

China Slows

China’s economy, the world’s second-largest, expanded 9.1 percent from a year earlier last quarter, less than the 9.5 percent gain in the previous three months, according to government figures released Oct. 18. Food inflation in India accelerated to 10.6 percent in the week ended Oct. 8 from a year earlier, the fastest pace since April, government data showed Oct. 20.

European governments may release as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, seeking to break a deadlock between Germany and France that is forcing leaders to hold two summits within four days. A summit for Oct. 26 was set on Oct. 21 after Germany and France said the EU needs more time to seal a “global and ambitious” accord.

Thailand may cut its growth estimate by more than 1 percentage point from a targeted 4.1 percent when policy makers meet next week, Governor Trairatvorakul said in Bangkok on Oct. 21.

Flood Impact

“There is concern that the impact from the floods on the economy will become much bigger as the waters are nearing the capital,” said Kozo Hasegawa, a trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Sentiment for the baht may continue to be weak.”

The floods have affected 14,254 factories and businesses in 20 provinces, according to the Labor Ministry. Thailand’s central bank, which left the benchmark interest rate unchanged this week at 3.50 percent, signaled Oct. 21 it is willing to consider cutting rates as the disaster threatens to slow growth.

China’s yuan gained 0.1 percent during the five-day period to 6.3840 per dollar. The economy may continue to slow this quarter and in the first half of 2012, National Business Daily reported yesterday, citing Chen Dongqi, deputy director of the National Development and Reform Commission’s Chinese Academy of Macroeconomic Research.

“The yuan’s appreciation will likely slow modestly,” said Robert Minikin, a senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “We expect to see more two-way variability and the moves will be less one-sided.”

Rupee Rebound Predicted

The rupee, the worst-performing currency in Asia this year, will rebound more than 3 percent from a 2 1/2-year low touched yesterday as India’s central bank raises interest rates, according to Skandinaviska Enskilda Banken AB.

Investors should buy the currency once it falls to 50.30 per dollar, targeting a “near-term” advance to 48.60, the Swedish lender said in a research note yesterday. The Reserve Bank of India will raise its benchmark rate to 8.50 percent from 8.25 percent at a meeting on Oct. 25, according to 13 of 19 economists in a Bloomberg survey. Six predicted no change.

The monetary authority lifted borrowing costs six times so far in 2011 to cool inflation, boosting the yield advantage on local assets. Rates on 10-year sovereign notes closed at 8.82 percent yesterday, widening the extra yield over Treasuries to 6.6 percentage points.

Elsewhere, Indonesia’s rupiah slipped 0.2 percent this week to 8,863 per dollar, Taiwan’s dollar was little changed at NT$30.299 and the Philippine peso retreated 0.2 percent to 43.44. South Korea’s won appreciated 0.8 percent to 1,147.50.

To contact the reporters on this story: Andrea Wong in Taipei at awong268@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net