No end to turmoil for SE Asian money

No end to turmoil for SE Asian money

SINGAPORE (AFP): Speculators mounted a fresh attack against Southeast Asian currencies yesterday, inspired by bad news out of Thailand which took regional financial markets into a fourth week of turmoil.

"Thailand has renewed its role as a catalyst for regional currency instability," said Desmond Supple, head of Asian currency research at Barclays (BZW) Global Foreign Exchange.

The Singapore dollar hit a 32-month low against the U.S. dollar while the Malaysian ringgit touched its lowest point against the greenback since the Thai baht's devaluation on July 2 set off the region-wide currency storm.

U.S.- based hedge funds and inter-bank players hammered regional currencies and quickly locked in profits, careful not to carry their positions into Friday when regional central bankers meet in Shanghai, dealers said.

Malaysian Prime Minister Mahathir Mohamad's call for a "common stance" to support Southeast Asian currencies and remarks that laws could be formulated "regarding our currencies" made the market pause momentarily, dealers said.

"The market eased up on that but the pressure just came back again," said Alison Seng of MMS International.

"It appears that more concerted and concrete measures from the central bankers are needed to stem the flood of currency speculation."

Dealers said the Thai baht plunged to 32.16 to the greenback in early Singapore trade from Wednesday's close of 31.30 amid rumors that Bangkok will dismantle the two-tier exchange-rate system it introduced to limit speculation.

It later recovered to end at 31.90 on the offshore market. The baht had dipped below the 32 level Wednesday, more than 25 percent off its value prior to its float.

Analysts blamed the baht weakness, which spread to other regional units late Wednesday, on the imminent release of a report on the bad debts of Thai financial institutions and poor half-year results of the banking sector.

A rumor gripped the offshore market that the Bank of Thailand would at the weekend dismantle the two-tier market it imposed to control non-residents' access to the baht and dry up baht liquidity to prevent speculative attacks.

Such a move would be a trade-off for an International Monetary Fund (IMF) loan, but analysts discounted any weekend announcement.

"Thailand may not have a choice but to eventually seek IMF help, but IMF help will come with strings attached," said Jacqueline Ong of the British financial consultancy I.D.E.A.

An abolition of the controls would increase the supply of the baht on the offshore market and open up a "lot of fresh upside for the dollar-baht," Ong said, adding that the baht could then dip to 34 or 35 to the greenback.

The Singapore dollar Thursday hit a low of 1.4782 to the U.S. unit from 1. 4684 overseas as Finance Minister Richard Hu's comment that its value would be set by market demand was taken to mean authorities will not intervene.

The Singapore unit closed at 1.4768, the lowest since November 1994, dealers said. The ringgit was dragged down to 2.6545 from 2.6400 overnight, dealers said. It bounced back to 2.6350 but closer lower at 2.6495.

The Indonesian rupiah fell to 2,615 from 2,585 overnight before ending at 2,604 as Bank Indonesia Governor Soedradjad Djiwandono called on banking and business leaders to remain "vigilant" to ensure currency stability.

Supple of Barclays said there would be no respite in the short-term, as regional central bankers gathered in Shanghai.

"Ultimately the contagion effect remains as strong as it was. It is continuing across the board," he said, adding that "current market conditions mitigate against a successful currency market intervention."

He predicted the ringgit could test the 2.7000 level while the rupiah looked set to converge with the weak end of the central bank's intervention band of 2,682.

"So long as the baht sentiment is weak, it will be difficult for other (regional) currencies to recover substantially," said Daragh Maher of ING-Barings.

He said the baht should dip to a level where it had "fully priced in the problems that Thailand will face" before the regional turbulence ceases.

"The baht will eventually weaken to a level where these worries are priced in. Speculative momentum will then dissipate and the fundamentals will reassert themselves," he added.