SE Asian currencies stage tentative recovery
SE Asian currencies stage tentative recovery
SINGAPORE (Reuter): Southeast Asia's battered currencies staged a tentative recovery yesterday as the market pinned its hopes on an economic rescue package for Thailand.
Dealers said news that Thai leaders had agreed in principle to tap loans from the International Monetary Fund (IMF) lifted the baht and underpinned the region's other currencies.
Malaysian Prime Minister Mahathir Mohamad's stern threats of possible punitive action against currency speculators also spurred some nervous dollar sales by funds that had been piling aggressively into the U.S. unit in recent sessions.
In Thailand, the central bank governor Rerngchai Marakanond said any loan taken from the IMF would be channeled to assist the whole economy, not to bail out any specific sector.
"If they (Thailand) were to take the loan, I'm sure one of the trade-offs would be that they will have to lift the ban," on local banks lending baht overseas, a Singapore dealer said.
He said a removal of the ban, imposed when the baht came under fierce speculative attack in mid-May, would have to be coupled with fiscal and monetary policies to protect the baht from a renewed assault.
"With all this in hand, most traders would like to reduce their positions, especially with it being the end of the month," he said.
Thai Finance Minister Thanong Bidaya said earlier in the day he was seeking IMF advice this week ahead of an economic revival package due by Aug. 5.
He said economic ministers would discuss a rescue package for the economy, but the talks would not cover the question of borrowing from the IMF.
Dealers said the focus had shifted back to Thailand, whose economic troubles triggered weeks of regional currency mayhem, after Friday's meeting of 11 Asian central banks in Shanghai.
A joint statement from the meeting provided no surprises, leaving players grasping at its promise that members of the group would work with the IMF to find answers to their economic problems.
The baht strengthened through the 32.00 per dollar level in afternoon trade, but dealers said its rise was likely to be capped around 31.30 for the time being.
Elsewhere, Mahathir's's continued threats against currency speculation caused the ringgit and Indonesian rupiah to rebound on fears of the possible imposition of capital controls.
"The government has got some ideas on what to do but obviously we cannot just publish what we want to do," The Malaysian leader told reporters.
Dealers said the ringgit's rise to a high of 2.6310 to the dollar was exaggerated by poor liquidity and wide spreads. The ringgit was at 2.6390/405 at 0935 GMT against 2.6500 earlier.
"Now that the politicians have made it known that they're unhappy with this situation, the funds would just pull out," one said.
The move in the ringgit helped the Singapore dollar strengthen through the key 1.47 level to the U.S. dollar but dealers said its upside would be capped around 1.4670.
The Indonesian rupiah breached the psychological 2,600 resistance on offshore dollar sales. Dealers said the dollar fell to a low of 2,565 before profit-taking helped it recover to around 2,585/95 at 0935 GMT.
In the Philippines, the central bank raised banks' liquidity reserves to three percent from two percent to mop up excess liquidity in the system.
Earlier, it effectively cut the overnight borrowing rate to 22 percent from 25 percent, in a move it said was aimed at encouraging banks to reduce their lending rates.