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."