SE Asia may feel interest rates rise pinch

SE Asia may feel interest rates rise pinch

KUALA LUMPUR (Reuter): From the price of wheat to petrol, some Southeast Asian consumers may begin feeling the pinch of rising interest rates as central banks struggle to defend flagging currencies, analysts said yesterday.

Over the past few weeks, the Thai baht, Philippine peso and Malaysian ringgit have all fallen prey to speculative attack, forcing the central banks of each country to boost interest rates in a bid to prop up their sagging currencies.

Indonesia's rupiah has also been hit by regional spillover sentiment, prompting its central bank to widen the dollar-rupiah exchange band to 12 percent from eight percent.

"If it stays like this, obviously it will have an impact on prices of consumer goods. Prices will start going up. Imported goods, in particular, will be greatly affected," said Kostas Panagioutou, economist at Kim Eng Securities in Kuala Lumpur.

In Thailand, where the baht has depreciated by around 15 to 20 percent since it was put on a managed float system on July 2, retail petrol prices have been rising to reflect higher costs.

Major foreign oil companies such as Caltex, Shell and Esso raised their retail prices by around 18 satangs (less than $0.01) per liter across the board, industry sources said.

If the baht hovers around 28.00 to 29.00 baht per dollar, retail oil prices would be 25 to 50 satangs per liter higher, industry sources said.

In the Philippines, banks' prime lending rates jumped up to more than 30 percent on Tuesday from 20 percent last week. The country's central bank last Friday decided to allow the peso to move in a wider band, a de facto devaluation.

The price of wheat inched up slightly to 307 pesos ($10.41) per 35-kg bag from 303 pesos last week but sugar prices were unchanged at 940 pesos per 50-kg bag.

"We can easily buy sugar from the middlemen, but we're seeing some tightness in wheat supply," a wholesaler in the Philippines said.

Malaysia's ringgit has become the latest Southeast Asian currency target. The Malaysian unit dropped to a 33-month low of 2.5700 against the U.S. dollar earlier on Tuesday, before recovering slightly to 2.5570/90 at 0755 GMT.

One-week money was at 13/15 percent on Tuesday after soaring to 25 percent on Monday, while the benchmark three-month Kuala Lumpur Interbank Offered Rate (KLIBOR) eased to 11.3 percent at 0300 GMT on Tuesday from 14.5 percent on Monday.

The country's largest bank, Malayan Banking Bhd (Maybank) on Monday boosted its base lending rate (BLR) -- that which it charges its best customers -- to 9.35 percent from 9.10 percent.

So far, no other banks have followed Maybank's actions, and some analysts said Maybank was catching up to other banks' rates, which already reach as high as 9.60 percent.

The effect of the weak ringgit could start showing up in consumer prices as early as August, said P.K. Basu, regional economist at UBS in Singapore.

"But it will have not more than 1.5 percent impact on the Consumer Price Index," he said.