Focus shifts to ringgit as rupiah, baht lose shine
Focus shifts to ringgit as rupiah, baht lose shine
SINGAPORE (Reuter): Southeast Asia's most sought after currencies, the Indonesian rupiah and the Thai baht, are losing their sheen as policy uncertainties and fear of capital controls force investors to look elsewhere, analysts said at the weekend.
Benefiting on the rebound is the Malaysian ringgit, which though dogged by a spate of not-so-good news for its economy has been surging in the past two weeks, pushed up by fresh investment and relocation of funds by international investors, they said.
Analysts said factors that had made the rupiah and baht attractive, their high yields, or domestic interest rates, are still the highest in the region.
But there was a possibility of both Indonesia and Thailand putting in place controls to slow the flow of capital into their funds-flush economies.
"There is a fear in the market that Thailand and Indonesia, unable to manage the inflow of funds, may impose some capital restrictions," said a dealer with a Kuala Lumpur bank.
High inflation in the two countries is making it imperative for them to maintain a tight monetary policy, but inflow of funds has been exerting pressure on interest rates.
The Bank of Thailand said about 240 billion baht (US$9.4 billion) of foreign funds flowed into Thailand in the first three months of the year. Of the foreign funds, up to 170 billion baht was invested in bills of exchange and 70 billion baht in non- resident baht accounts.
Dealers in Bangkok said the Bank of Thailand was considering various measures to curb the "hot money", or short term funds, flow into the country, including changing the basket of currencies against which the baht is valued and curbing sale of all government paper to foreign investors.
"There is a possibility of some curbs (on foreign funds)," said Desmond Supple, regional economist with British research firm I.D.E.A. in Singapore.
He said in Indonesia too "there is growing pressure on the government to allow greater depreciation of the rupiah".
"Inflationary pressures (in Indonesia) are undermining any monetary loosening, but it has to maintain a tight monetary policy," he said.
If these measures were implemented, the two currencies would become less attractive, analysts said.
Fresh investment
In anticipation, a large part of fresh investments, particularly from the Japanese in their new financial year which started on April 1, have begun to keep clear of baht, rupiah and even the safe but low-yielding Singapore dollar.
Much of that money has got diverted into the ringgit, pushing it up to a seven-month high towards the end of last week, just days after the country announced a 1.1 billion ringgit (US$438.2 million) trade deficit in January.
The ringgit had been sold down towards the end of 1995 and early this year on predictions that the fast-growing Malaysian economy was running out of control with a huge current account deficit and high inflationary pressures, dealers said.
"Now we are saying that Malaysia will be better than even Thailand," said Neil Saker, regional economist with Crosby Securities.
Analysts said this did not mean that there will be no interest in rupiah and baht.
"Together with the Singapore dollar and the (Philippine) peso, currencies of the region will continue to be the most sought after, though not for the same reasons," said an economist with a Singapore-based bank.
While the Singapore dollar is considered a safe investment as the Monetary Authority of Singapore does not allow wide fluctuations, the prime determining factor for investment in the others would continue to be interest rates.
The three-month interbank rate is at 16 percent in Indonesia, 9.0 percent in Thailand, over 14 percent in the Philippines and 7.10 percent in Malaysia.
The rate is at 2.10 percent in Singapore, 5.56 percent in the U.S. and less than 0.5 percent in Japan.
According to I.D.E.A., this is bound to attract a lot of funds to the region's currencies.
"However, this trend will be problematic for many central banks in the region as they will impede the conduct of their monetary policies," it said in a recent study.
Almost all the countries in the region were facing inflationary pressures and needed to maintain a tight monetary policy, which would be undermined by the huge funds inflow, again particularly from Japan.
"Overall, therefore, while the expected influx of Japanese funds into high yielding Asian economies will lead to a bullish phase for those countries' currencies and asset markets, by exacerbating overheating conditions the longevity of these inflows is likely to be comparatively brief," I.D.E.A. said.