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.