1997 likely to be stronger year for Asian currencies
1997 likely to be stronger year for Asian currencies
By P. Parameswaran
SINGAPORE (AFP): Asian currencies are expected to check their
slide against the U.S. dollar in 1997, when the greenback is
unlikely to maintain its rapid appreciation against the yen,
analysts say.
"The U.S. dollar could depreciate a little bit against a few
of the Asian currencies next year, including the Singapore
dollar, Malaysian ringgit and the Thai baht," said Andy Tan,
general manager of MMS International in Singapore.
Tan said, however, the greenback should continue appreciating
against the Indonesian rupiah and perhaps somewhat against the
South Korean won, which posted the biggest decline against the
dollar among Asian units in 1996.
He said the won would further ease against the greenback if
South Korea's current account deficit, tipped to reach US$22
billion in 1996, did not narrow.
The won's nine-percent decline against the dollar, caused by
the ballooning current-account deficit, was a shade lower than
the yen's 8.9 percent fall against the greenback in 1995, Tan
said.
"We expect the dollar to weaken a little against the yen in
1997, when the Japanese economy starts picking up steam and the
Japanese interest rates begin to rise," he said.
MMS studies show that apart from the yen and the won, most
Asian currencies have been relatively stable, moving within a
two-percent range against the dollar in 1996, Tan said.
Among those which gained ground were the Singapore dollar, by
one percent, the baht by one-and-a-half percent and the ringgit
by 0.6 percent.
The rupiah, however, depreciated by 2.8 percent and the
Philippine peso by 0.4 percent.
The rupiah's decline was expected because of Indonesia's
deliberate policy to keep the currency down against the greenback
-- a tactic to check capital flight.
The U.S. dollar closed at 2.5255 ringgit, 1.3993 Singapore
dollars, 25.62 baht, 2,360 rupiah, 2,629 rupiah, 114.26 yen and
844.40 won in Asian trading on Friday.
Analysts said markets next year would remain focused on the
rupiah, baht and ringgit, all of which have been 1996 favorites
of U.S. and Japanese funds, which have been capitalizing on the
wide spread between interest rates in their home countries and
this region.
Jimmy Koh, an emerging-market economist at British financial
consultancy IDEA, said he expected Indonesian authorities to
further widen the rupiah-U.S. dollar intervention band in the
first quarter of 1997.
"In fact, market players are already positioning for the band
widening," he said, speculating that Jakarta planned the move to
address fears that the Indonesian economy was overheating.
Indonesia follows a "managed float exchange" rate policy,
whereby the central bank sets the core value of the rupiah around
which it will intervene.
Koh said the ringgit could again test the 1996 high of 2.4775
against the U.S. dollar in the second quarter of next year, as
Malaysia is successfully reducing its weighty current-account
deficit.
"Malaysia seems to be tackling its economic problem at its
root, and that is by checking overheating through tight monetary
policy -- keeping interest rates high and inflation down," Koh
said.
The volatile baht was expected to come under continued attack
from speculators keen on testing the limits to which the Thai
central bank would defend the currency, traders in Singapore
said.
Some say the central bank would adopt exchange-rate reforms to
check further pressure on the baht.
"We see the possibility of reforms in the management of the
Thai baht in 1997," Irene Tang, a regional economist with Paribas
Capital Markets, said.
"We think that a new trade-weighted exchange rate basket is
more likely. The weights for the yen, European and regional
currencies will be raised at the expense of the U.S. dollar," she
said.
The Thai central bank fixes the baht daily against a basket of
currencies, mainly comprising the U.S. dollar, followed by the
yen and the mark.
The Singapore dollar, regarded as a safe-haven currency, is
tipped by analysts to remain strong despite an economic slowdown
in the city state.
They feel the Monetary Authority of Singapore (MAS) would want
a stronger currency to cushion the effects of the U.S. dollar's
easing against the yen.
"About 30 percent of Singapore's imports of capital goods come
from Japan. To keep imported inflation down, MAS wouldn't mind a
stronger Singapore dollar," Koh said.
The Philippine peso, mostly pegged to the greenback, is
expected to hover around the 26.20-26.50 level against the U.S.
dollar at least until the end of 1997, according to NatWest
Markets in Singapore.