SE Asian monies down as central banks step aside

SE Asian monies down as central banks step aside

HONG KONG (Dow Jones): The slide in Southeast Asian currencies accelerated during local trading Thursday, as the Thai baht, the Singapore dollar and the Philippine peso all dropped to set new long-term lows.

Analysts struggled to place a finger on any specific reason for this latest selloff in regional foreign exchange markets.

Country-specific factors including high levels of non- performing loans in Thailand, concerns over the Philippines' fiscal deficit and a moderately disappointing August export performance in Singapore were all mentioned.

But one clear common factor in the weakness of all of the Southeast Asian currencies was the reluctance of local central banks to intervene in the market in support of their currencies.

"The central banks have all stood aside and let the market take the currencies weaker. They are not unhappy with the situation," said Vincent Low, a regional economist at Merrill Lynch in Singapore.

The Bank of Thailand's Deputy Governor Kitti Patpongpibul underlined the point Thursday, echoing comments made the previous day by Deputy Finance Minister Pisit Leeatam, who told listeners to a local radio program that the baht's slide was not "unusual."

If the currency's fall was not unusual, it certainly was pronounced. Asian trading Thursday saw the baht drop by 1.5 percent, as consistent dollar bids drove the U.S. currency up through successive stop loss triggers to hit a high of 40.98 baht, the dollar's highest level in a year. Late in Asian trading the previous day the U.S. dollar had been quoted at 40.3650 baht.

The Monetary Authority of Singapore, too, was conspicuous by its absence from the market Thursday, as selling pressure pushed the Singapore dollar to a three and half month low.

According to one trader at a local bank, the local currency's fall was propelled largely by speculative selling after Singapore's trade minister Wednesday said a weaker currency was "always helpful to exporters."

By late in Asian trading the U.S. dollar had risen to its highest level since early June to be quoted at S$1.7150, up from S$1.7076 the previous day.

The Philippine peso was also allowed to fall unimpeded, dropping to its lowest level since last November during intraday trading, as the dollar rose to a high of 40.700 pesos.

At the close of local trading in Manila, the U.S. currency had settled slightly to trade at 40.600 pesos. At Wednesday's close the dollar had been quoted at 40.330 pesos.

Much of Thursday's depreciation in regional markets was driven by foreign portfolio investors retreating ahead of a feared new year liquidity trap and by domestic factors including quarterly debt servicing.

But traders and analysts did report some speculative selling in markets across the region.

"I would be careful about drawing any parallels with the events of two years ago, but some of the low yielding regional currencies have attracted short selling interest in the offshore market," noted David Simmonds, foreign exchange strategist at Citibank in Singapore.

Even so, there was no sign that regional central banks would consider raising interest rates to support their currencies.

Regional monetary authorities appear determined to keep interest rates as low as possible in order to ease the cost of their fiscal spending, relieve the pressure on their banking sectors and encourage an upturn in corporate activity. At the same time weaker currencies are welcomed as a boost to exporters.

In North Asia, the New Taiwan dollar remained isolated from the Southeast Asian selloff, the central bank continued to sit firmly on any latent market volatility following Tuesday's earthquake.

At the end of the local session the U.S. dollar was quoted at NT$31.795, unchanged from NT$31.796 at Wednesday's close. Markets in Seoul were closed for a holiday.