China cen­tral bank's eas­ing high­lights di­vide in Asian cur­ren­cies

The Pak Banker - - FRONT PAGE -

Asian cur­ren­cies have split along ge­o­graphic lines in re­sponse to China's in­ter­est-rate cut: In the north, they're ral­ly­ing on op­ti­mism stocks will stop fall­ing, while in the south fears of a weaker yuan are push­ing them lower. Tai­wan's dol­lar climbed 1.1 per­cent against the green­back as of 3:29 p.m. in Taipei and South Korea's won rose 0.8 per­cent. In South­east Asia, Malaysia's ring­git dropped 0.7 per­cent, In­done­sia's ru­piah fell 0.4 per­cent and Thai­land's baht lost 0.3 per­cent.

Aimed at shoring up its plung­ing stock mar­ket, China's fifth in­ter­est-rate cut since Novem­ber and its low­er­ing of banks' re­serve ra­tios is ex­pected to put more down­ward pres­sure on the yuan. It has also deep­ened con­cern that the slow­down in the world's big­gest con­sumer of raw ma­te­ri­als may be worse than pre­vi­ously thought, which would be more bad news for South­east Asian economies that de­pend on com­mod­ity ex­ports.

'It's a vi­cious cy­cle. If you do mon­e­tary eas­ing, you will have more de­pre­ci­a­tion ex­pec­ta­tions on the cur­rency,'' said Andy Ji, a Sin­ga­pore­based strate­gist at the Com­mon­wealth Bank of Aus­tralia. "The eas­ing is not go­ing to lift com­mod­ity prices. In North Asia, peo­ple are just look­ing at the early sta­bi­liza­tion of the eq­ui­ties mar­kets." The Kospi in­dex of shares in Seoul closed up 2.6 per­cent on Wed­nes­day, the most in more than two years, while a gauge of Tai­wanese stocks rose 0.5 per­cent fol­low­ing a 3.6 per­cent jump on Tues­day.

China's eas­ing fol­lows a sur­prise de­val­u­a­tion of the yuan on Aug. 11, which spurred fears of a cur­rency war in Asia as cen­tral banks sought weaker ex­change rates to safe­guard ex­ports. The Chi­nese rate cut will put more down­ward pres­sure on the ru­piah and In­done­sia's eco­nomic growth, said Harry Su, head of re­search at PT Ba­hana Se­cu­ri­ties in Jakarta. "North Asia is do­ing a lit­tle bit bet­ter be­cause the South­east Asian cur­ren­cies are prone to frag­ile risk sen­ti­ment," said Com­mon­wealth Bank's Ji.

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