Asian cbanks intervene as currencies rise
SINGAPORE: Central banks in South Korea, Malaysia and Thailand intervened in foreign-exchange markets Thursday as Asian currencies surged against the dollar on optimism about the region's economic outlook, underscored by strong economic data from China and signals that the yuan will continue to strengthen.
Taiwan, meanwhile, unveiled measures to buttress its banking system against rapid movements in foreign capital, the latest Asian country to introduce stricter regulations to control the risks posed by such capital flows.
The currency moves were exaggerated by thin trading conditions, with many investors away for year-end holidays. But traders said an upward trend for most Asian currencies appears set to continue, with China's decision to guide the yuan to a modern record against the dollar cementing the bullish sentiment.
"People are making a bet that growth in emerging markets will still be on an uptrend and that currencies will continue with their appreciation," said Lum Choong Kuan, head of fixed-income research at CIMB Group in Kuala Lumpur. "With the debt crisis in Europe and with the U.S. still showing protracted slow growth, investors will have no other place to put their money but here."
Capital has been flooding into Asia this year, helping to finance investments in one of the world's fastest-growing regions. But the influx of foreign money has raised concerns in Asian capitals about the perils of fast-moving capital flows, given the damage the region's economies suffered during the Asian financial crisis of the late 1990s, when a previous boom ended suddenly and foreigners rushed for the exits.
Fresh data Thursday from China, the powerhouse of the Asian economy, showed manufacturing growth eased slightly in December but was still at relatively high levels. The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 54.4 in December from 55.3 in November; any reading above 50 indicates expansion.
Hongbin Qu, HSBC's chief economist for China, said that despite the moderation in the PMI inflation remains Beijing's top policy concern, rather than economic growth. He expects China to take further tightening measures to curb inflation--which hit 5.1% in November--including additional modest interest rate hikes. China's central bank raised interest rates Dec. 25, its second hike in less than three months.
CIMB's Mr. Lum said central banks in emerging markets are looking at tightening monetary policy next year, which means interest-rate differentials between emerging markets and the developed economies of the U.S., Europe and Japan should grow wider. That leaves Asian central banks looking for ways to control inflows of capital chasing higher returns.
In Kuala Lumpur, traders said Malaysia's central bank was suspected of buying dollars to curb a rise in the ringgit, which hit a three-month high Thursday. Bank Negara Malaysia may have bought dollars around 3.0810-3.0820 r i nggit per dollar, dealers said. -PB News