Central bankers fail to ease Asia's woes

Central bankers fail to ease Asia's woes

SINGAPORE (Reuter): The statement from Asian central bankers after their meeting in Shanghai yesterday contained little of substance, and did not significantly change the somewhat gloomy outlook for beleaguered Asian currencies.

Analysts said the statement from the "Shanghai Eleven" -- as they are known in the market -- was a bit of a damp squibb and would not do much to help, or to stem a recent upturn in hedging by nervous fund managers with portfolio exposure in the region.

On the other hand, there was nothing in the statement which will provide the market with an excuse to aggressively sell.

The central bankers said the meeting had agreed to renew a currency swap accord, which provides short-term liquidity financing to ease temporary balance of payments needs.

It also said the central banks would work with the International Monetary Fund (IMF) to study ways to aid members and recognized the importance of foreign exchange stability.

Regional economies are fundamentally sound, the statement said.

Financial markets around the region had waited with bated breath for the outcome of a meeting hailed as the 'G7' of Asia to see just what the central bankers could come up with to stop the currency rot.

"As we expected, they have steered a middle course and there is little magic in what they have said," said Kobus Van Der Wath, regional head of treasury economics at Standard Chartered in Singapore.

"In terms of the medium to long term they have done the right thing, but what we are interested in is Monday morning's opening and I don't think there is any real factor here that will drag the (U.S.) dollar down," he said.

"I can see the dollar a little firmer against the regional currencies next week...but we are talking about 50 basis points or so. This is not big figure stuff."

The 11 central banks at the Shanghai meeting were Japan, Hong Kong, Singapore, Malaysia, The Philippines, Thailand, Australia, New Zealand, South Korea, Indonesia and China. Taiwan was notable by its absence.

In a separate statement from Kuala Lumpur, foreign ministers of the Association of South East Asian Nations (ASEAN) said they had pledged to jointly fight speculators who sold down the region's currencies.

But analysts were agreed that all-in-all, Friday's statements did little to change things and expected more of the same in terms of currency movements.

"This is not going to give the FX market any consolation," said Jacquline Ong, regional president at I.D.E.A in Singapore, in an interview with Reuters Financial Television.

"I expect that in Asia next week the sell-off in the regional currencies is likely to continue."

In the wake of the Thai crisis which resulted in the effective devaluation of the baht at the beginning of July, most Asian currencies have dropped sharply.

This week the losses have been more restrained but nevertheless the baht has fallen another six percent to 32.00 per U.S. dollar, the Indonesian rupiah five percent to 2,610.00, the Malaysian ringgit two percent to 2.6500 and the Philippine peso two percent to 28.50.

Even the Singapore dollar, which up until now has remained aloof from the turmoil surrounding it, dropped one percent this week to 1.4700 per U.S. dollar.

The Hong Kong dollar traded in a range after the HKMA released figures showing it held HK$569 billion at end June, up 6.4 percent from end December, a move seen as aimed at scaring off speculators.

The Indonesian rupiah remained depressed below the 2,600 level to the dollar, but dealers said activity had slowed.