Asian cbanks in­ter­vene as cur­ren­cies rise

The Pak Banker - - Company& -

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

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