Central banks step in to defend currencies

Central banks step in to defend currencies

SINGAPORE (AFP): The central banks of South Korea, the Philippines and Indonesia reportedly intervened yesterday to shore up their currencies as the Taiwan dollar slumped to levels unseen since June 1987, dealers said.

The rupiah slid past the sensitive 3,460 against the U.S. dollar amid rumors there was a run on a provincial branch of one of Indonesia's largest domestic banks.

"There was some panic buying of the dollar but apparently there were rumors also that BI (the central Bank Indonesian) capped the rupiah at 3,450, " a dealer with a foreign investment house said.

The rupiah, which ended at 3,440, was weak also because of a continuing demand for the greenback from local corporations. It had closed Thursday at the 3,395 level after the central bank intervened when the currency breached the 3,400 mark.

Bank Indonesia and the Singaporean and Japanese central banks had been intervening in past weeks to cushion the rupiah's fall after the International Monetary Fund announced a multi-billion- dollar stabilization program for Indonesia.

A foreign exchange analyst with Australia's ANZ Investment Bank in Singapore said the rupiah could fall to 3,500 or even 3,600.

"It's cheap to sell the rupiah as the cost of funds is still soft," the analyst said.

David Cohen, analyst with U.S. research house Standard and Poor's MMS in Singapore, said the authorities would have to pump more money into the market in the way of reserves if they wanted to keep the rupiah near the 3,300 level.

The Taiwan dollar fell to a 10-year low of 31.350 against the U.S. dollar as the central bank reiterated its recent policy to let market forces determine currency value, dealers said.

The Taiwan currency, under pressure as two of its largest trading partners, South Korea and Japan, were rocked by financial turmoil, managed to pull back to close at 31.24 from Thursday's close of 31.12.

"Traders turned a deaf ear to the central bank's repeated warnings on the currency's recent falls," a local dealer said in Taipei, noting the currency had dropped 13 percent since early this year.

Central bank governor Sheu Yuan-tung reiterated his deputy's warning Thursday that the Taiwan dollar was undervalued.

The South Korean ended steady at 986.50 against the U.S. dollar after intervention by the central bank, which had stepped in nearly every day this week. The Korean currency had closed Thursday at 986.70.

"The central bank's intervention was so strong that no market players were actively buying dollars," a dealer said in Seoul. But he said it remains unclear how long the won's strength can be sustained.

The central bank of the Philippines also reportedly intervened as the peso ended at 33.98 against the U.S. dollar from Thursday's 33.70 due largely to profit taking. The market was cautious ahead of a reduction in the liquidity reserve requirement on Saturday.

"There seems to be some easing in money market rates in anticipation of the scheduled reduction," Cohen of MMS said.

The Malaysian ringgit closed slightly lower at 3.3200 against the U.S. dollar from 3.3180 a day earlier while the Singapore dollar was little changed at 1.5815 from 1.5805.

The Thai baht weakened to 38.8O offshore against the greenback from Thursday's close of 38.35 even after the Bank of Thailand said its foreign exchange reserves rose to US$31.3 billion as of Oct. 31, up from $30.7 billion as of Oct. 15.

"The announcement was more reflected on the stockmarket rather than currency. There seems to be genuine demand for the greenback to pay U.S.- dollar denominated debt," said Alison Seng, analyst with MMS.

The Hong Kong dollar strengthened to 7.7305 against the U.S. dollar from 7. 7315.