Speculators challenge central banks' resolve

Speculators challenge central banks' resolve

SINGAPORE (Agencies): Offshore funds tested again regional central banks' resolve yesterday on comments by Malaysian and Singapore authorities that they were not overly concerned by the recent fall in their currencies.

Indonesia's central bank was forced to intervene to defend the rupiah, which sank to a record low under attack from speculators who tightened the screws on battered Southeast Asian currencies, dealers said.

Speculators, turning their sights from the Singapore dollar and the Malaysian ringgit which slumped to three-year lows earlier this week, aimed their attacks mainly at the rupiah yesterday.

"There seems to be a baton passing among the emerging currencies. It is evident they are under rotational selling pressure from offshore funds," said Andy Tan, general manager of MMS in Singapore.

"You could say they (funds) are perhaps trying to see where the upper limit lies for the dollar against various currencies," he said.

Daniel Lian, head of Asian currency research at NatWest Markets, said hedge funds were also still bearish on other regional currencies, which have been under relentless pressure since the Thai baht's float on July 2.

The Singapore dollar hit 1.5175 to the U.S. unit -- the lowest since July 1994 -- before recouping to 1.5115 at the end of trading. It had closed the previous day at 1.5100 after hitting a 37-month low of 1.5140.

The Malaysian ringgit -- which tested a 42-month low Tuesday of 2.7930 before recovering to end at 2.7715 -- fell to 2.7775 to the greenback and the Thai baht ended slightly higher at 31.20 from 31.45.

In Manila, the Philippine peso closed Wednesday at 29.05 pesos to the U.S. dollar, down 1.4 percent from Tuesday's finish.

Malaysia's central bank was closely monitoring the ringgit yesterday, dealers said in Kuala Lumpur, adding that it would have to intervene if the 2.8 level was reached.

Desmond Supple, head of Asian currency research at Barclays (BZW) Global Foreign Exchange, said the market was looking to buy the U.S. dollar on any temporary strength in regional currencies.

"The market is aware that intervention is likely to prove self-defeating in the current conditions.

"The weakness isn't only due to short-term speculative play. It is more broad-based and there is much genuine demand for the U.S. dollar among genuine investors and local corporates.

"This reduces the efficacy of any intervention and ultimately inflates the cost of such action," Supple said.

"It's useless for the central bank to intervene in a bearish market," said Jimmy Koh, regional economist for the I.D.E.A. research consultancy.

He noted that the Malaysian central bank had spent some $8.8 billion in intervention measures when the ringgit was under attack earlier this month, but with little to show for its efforts.

"They are raising short-term rates but keeping the long-term rates, which determine lending and spending behavior in the economy, at current levels," said Manu Bhaskaran, Group Head of Research at SocGen Crosby.

"The central bank has a clear strategy and I think they will use short-term rates where necessary to hold the currency."