Asian currencies mostly low, peso down on new rates system

Asian currencies mostly low, peso down on new rates system

SINGAPORE (Dow Jones): Most Asian currencies were slightly
lower late Monday in cautious, range-bound trading ahead of the
U.S. Federal Reserve's policy meeting.

While the Federal Open Market Committee is widely anticipated
to hold interest rates at its two-day meeting, which starts
Tuesday, the market's focus has shifted to the FOMC's next
meeting in August, when the Fed is expected to resume its
tightening cycle, analysts said.

The Fed, which has raised rates by a total of 175 basis points
over the past year, is expected to announce after its meeting
Wednesday that the risk for the U.S. economy remains tilted
toward inflation, analysts said.

"Most people don't expect any rate change, but are looking out
for the statement after that and a possible hawkish overtone from
the Fed," said Thio Chin Loo, foreign exchange strategist at BNP
Paribas Group.

In the Philippines, increased confidence that the Fed won't
raise rates this week prompted the Philippine central bank to
replace its single-rate borrowing system with a three-tier
system, analysts said.

The unexpected move, which effectively amounted to a rate cut,
dented the Philippine peso.

The dollar closed at 42.910 pesos on the Philippine Dealing
System, up from Friday's close of 42.845 pesos.

Earlier Monday, the central bank effectively cut its overnight
borrowing rate from a flat rate of 10 percent to a three-tier
system that offers a lower rate for placements over 5 billion
pesos. Banks will get an interest rate of 10 percent for the
first 5 billion pesos in funds placed in the overnight borrowing
facility and 8.5 percent for the next 5 billion pesos. Funds in
excess of 10 billion pesos will earn 7 percent interest.

The central bank said the move was aimed at encouraging banks
to use their excess funds to lend to their clients rather than
invest in the monetary authority's overnight paper.

"This is a scheme to unwind the past rate hikes by the
(central bank) to help release funds for Philippine banks," said
Syetarn Hansakul, an economist at WestLB Research in Singapore.

President Abdurrahman Wahid's denial Monday of an imminent
cabinet reshuffle failed to ease investors' concerns over the
uncertain political climate in Indonesia.

Around 0940 GMT, the dollar was at Rp 8,683, up marginally
from Rp 8,660 late Friday.

Market participants are holding on to their long dollar
positions as the market braces for more political turbulence
ahead of the mid-August meeting of the country's highest
legislative body and amid doubts about Wahid's ability to hold on
to power, dealers said.

Strong offshore dollar-selling interest around Rp 8,700,
mostly by U.S. banks, kept the U.S. currency capped, dealers
said. The U.S. currency found strong support from local companies
that had to meet foreign obligations buying dollars, especially
below Rp 8,650, they added.

Keen corporate demand for U.S. dollars also weighed on the
Singapore dollar, which was at S$1.7344 against the U.S.
currency, compared with S$1.7311 late Friday. Offers to sell the
U.S. currency around S$1.7350, however, halted the U.S. dollar's
ascent, dealers said.

In Thailand, the dollar rose to 39.125 baht, from 39.100 baht
late Friday, after being hemmed in around 39.095 baht to 39.135
pesos.

A decline in Taiwan's stock market and caution ahead of the
Taiwan central bank's monetary policy-making meeting pressured
the New Taiwan dollar, dealers said.

The U.S. dollar finished higher at NT$30.797, compared with
NT$30.767 at Friday's close.

Bucking the region's weakness, U.S. dollar-selling by local
exporters and the Japanese yen's resilience lifted the South
Korean won, dealers said.

The dollar finished at 1,118.1 won, down from Friday's close
of 1,119.40 won.

The dollar was at Y104.36, below Y104.63 late Friday in New
York, after Japan's Liberal Democratic Party-led coalition
retained power in elections for Parliament's lower house Sunday.