Asian currencies off highs but still upbeat

Asian currencies off highs but still upbeat

SINGAPORE (Reuters): Asian currencies shed most of their early gains yesterday, but remained well underpinned as the dollar softened against the yen on news of an unexpectedly large Japanese economic stimulus package.

The International Monetary Fund's ringing endorsement of Malaysia's efforts to strengthen its economy and financial sector and improving ties between Indonesia and the IMF also cast a glow over the region.

Bank Negara Malaysia on Wednesday announced tighter regulations for the troubled banking system, including frequent reporting of financial indicators and higher capital requirements.

IMF chief Michel Camdessus said overnight the moves would allow growth to remain positive in 1998, keep inflation under control and contribute to stability in the region.

The ringgit slid back through 3.60 per dollar in late trade after reaching an early high of 3.53. Dealers said it could head up towards 3.52 or even 3.50 soon, though the market was looking for more signs of consolidation in the financial sector.

"There was selling of dollar/ringgit by a big party earlier. They were trying to push it down, but when it failed, they just turned around and bought it back up," said a regional currencies dealer in Singapore.

A Reuters poll of 10 economists and foreign exchange dealers produced an average forecast of 3.60 for the ringgit by end-June.

Bank Negara governor Ahmad Don's comments that the central bank was willing to raise interest rates to defend the ringgit and that banks' statutory reserve requirement (SRR) would be kept at 10 percent also helped the ringgit.

Prime Minister Mahathir Mohamad raised the spectre of another SRR cut early this week when he said a high-powered economic council had recommended the SRR be reduced by one to two percent.

The Singapore dollar hovered around 1.60 after rising above that barrier in early trade.

Dealers said the market was largely unmoved by news Temasek Holdings, the government's investment arm, planned a US$1 billion bond issue, exchangeable for Singapore Telecom shares.

The Indonesian rupiah drifted to the lower end of a narrow range amid confusion over interest rate cuts and indications the country's corporate debt problems might not be resolved soon.

The World Bank's Asia operations head, Jean-Michel Severino, highlighted the difficulties in restructuring Indonesian debt, saying he would be "extremely satisfied" to see an agreement by the fall.

An Indonesian central bank official said a suggested six-month extension for Indonesian companies' repayment of principal on their debt might not be enough.

The rupiah was knocked off its perch by rumors Bank Indonesia might cut rates after state banks lowered their deposit rates, but the central bank said it had no plan to change rates in the short term.

Bank Indonesia sharply hiked rates on most of its papers early in the week, in a move to strengthen the rupiah and curb inflation, prompting state banks to follow suit.

But dealers said signs Jakarta was moving closer to an agreement with the IMF limited the rupiah's decline.

In Jakarta, the rupiah ended the day at 8,500 against the U.S. dollar as compared to the previous day's close of 8,375.

The Thai baht was firm but trapped in a dull range due to corporate dollar demand and a perception it had already strengthened significantly.

The Philippine peso sharply reversed course as banks scrambled to cover short dollar positions after it briefly rose above 37.00 to the dollar in early trade.

The Finance Ministry said it was against any plan to cap bank lending rates. The central bank is consulting with several groups on the topic after businessmen complained of banks overcharging them.

Central bank governor Gabriel Singson said the Philippine Monetary Board had approved a regional currency trading scheme with Malaysia and a one-year, renewable agreement was expected to be signed in May. The Philippines is the first country to formally approve the plan, proposed by Malaysia to reduce Southeast Asia's dependence on the dollar.

The South Korean won gave way to speculative dollar buying on a belief the dollar might be due for a rebound after a sell-off earlier this week.

Data showing business sentiment was expected to worsen in the second quarter and unemployment rose to 5.9 percent in February from 4.5 percent the month before did little for the won's spirits.