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.