Asian currencies seen pressured by slowdown

Asian currencies seen pressured by slowdown

SINGAPORE (Reuters): The outlook for Asian currencies worsened in the second half of 2001, infected by a longer-than-expected global economic malaise.

The latest Reuters poll shows analysts have revised down their forecasts for regional currencies from a previous poll in January as lagging growth in the United States saps export-dependent economies in Asia.

"In January, we did not think the downturn would be that severe, it turned out to be more prolonged and sharper than we thought," ABN Amro economist Gerald Teo said, referring to the Singapore dollar, often used as a proxy for less liquid regional currencies.

A cloudy political picture will also sour sentiment for some currencies, especially the Indonesian rupiah.

"The straight line forecast is basically an implicit acknowledgement that we don't know what's going to happen," Merrill Lynch economist Vincent Low said of the rupiah.

The outlook for the Indonesian rupiah has been sharply revised down, reflecting persistent concerns about the bleak domestic economy from President Abdurrahman Wahid's bumbling rule since October 1999.

Analysts said a possible change in leadership following an impeachment hearing in the top legislature in August will breathe some life back into the sickly rupiah but underlying sentiment would remain dour.

"The economic and political fundamentals are so weak and so questionable that it would be difficult to sustain gains below 10,000 for long," Julian Jessop, global markets economist at Standard Chartered Bank in Singapore, said.

The Philippine peso will remain vulnerable, but analysts say investor focus has shifted to the weak global economic environment from uncertain domestic politics, which has dogged the currency since the beginning of the year.

The peso hit a record low of 55.75 in January 17, days before former President Joseph Estrada was ousted from office through a popular revolt.

The Taiwan dollar will suffer a further stumble by the end of 2001 due to a languishing economy and political uncertainties ahead of key legislative elections in December.

"The domestic political environment will only become more chaotic after the December 1 legislative elections, adding more pressure to the already teetering economy," the head of treasury at a U.S. bank in Taipei said.

Analysts reckon the Thai baht would come under pressure from a generally bleak outlook for the domestic economy, but pending changes of Thai forex reporting rules and uncertainties over central bank policy would limit the fall.

"There's a lot of confusion over the FX rules and central bank policy. People therefore prefer to stay on the sidelines than to take a positions," Usara Wilaipich of Standard Chartered Bank said.

The forecast for the Korean won has been slashed from the January poll where many expected an earlier rebound in the economy. But it is likely to strengthen from the current level on hopes for an economic recovery, a firmer yen and a hefty trade surplus.

"Around the end of the year, there will be some optimism on the global economy for the next year, and in 2002, we expect that outlook to be materialized," Citibank economist Oh Suk-tae said.

Likewise, the Singapore dollar will probably hold steady for the rest of this year on hopes for a pick-up in the electronics industry and the healthier U.S. economy.

Malaysia is expected to keep its exchange rate fixed at 3.8 ringgit per dollar at least until the end of this year.

Dwindling international reserves and outflows of funds in the early part of the year have raised doubts over how long the current peg, in place since September 1998, would hold. But analysts said funds parked outside the country could return to enjoy higher interest rates, boosting reserves.

"There's no real pressure to re-peg the ringgit. We can withstand the reserves decline," T.S. Pong, head of research at Jupiter Securities, said.

Survey respondents expected China to keep the yuan firmly reined this year and delay allowing a wider trading band for it until 2002, when Beijing's impending entry in to the World Trade Organization starts to undercut its trade surplus.

But they said China must give the tightly-controlled currency more room to counter trade shocks expected after it joins WTO or if the yen extends its fall.