Weak dollar could affect SE Asia

Weak dollar could affect SE Asia

SINGAPORE (AFP): Southeast Asia's fast-growing economies could face problems requiring policy adjustments if the U.S. dollar persists at current weak levels, a report on the outlook for regional currencies has warned.

Singapore, Malaysia and Thailand could come under pressure to tighten monetary policy, said the quarterly economic review by the British investment research firm Crosby Research Ltd.

The Indonesian rupiah and the Philippine peso meanwhile are vulnerable to speculative attacks in greenback-led currency market turmoil, the report said.

Regional currencies have come into focus since the Thai baht and the rupiah came under attack in January following the sudden devaluation of the Mexican peso which sent currency markets into a tailspin.

Crosby noted in the April report that the Monetary Authority of Singapore has been fighting a rapid appreciation of the Singapore dollar, while the Philippine central bank in February raised interest rates to defend the peso.

The report predicted continuing upward pressure on the Sing dollar to appreciate to 1.36 to the greenback by year-end.

The currency has already surged 4.1 percent from 1994-end to around 1.40 to the U.S. unit, which recently has hit historical global lows against the Japanese yen, it said.

The greenback's fall could increase U.S. demand for electronics and industrial equipment, boosting Singapore's exports and overall economic growth, estimated at 9.2 percent for the current year.

But, Crosby said: "With strains already beginning to emerge from last two years of very high economic growth, this boost to growth implies that the government may have to rely increasingly on administrative measures to control stability in the economy."

Malaysia also would have to tighten policy with a combination of higher interest rates and mild currency appreciation as it faces the prospect of overheating in both investment and consumption, fanning inflation, it said.

More volatility was predicted for the Thai baht as Thailand's accelerating economy comes under strain from stronger external demand, enhancing its central bank's shift to tighter monetary policy.

Thai borrowers have become wary of foreign currency loans following the Mexican crisis, increasing the demand for baht credits and exerting upward pressure on domestic interest rates, Crosby said.

"This widening of interest rate differentials between Thai and international, especially U.S. dollar, will result in greater short-term capital inflows," making for volatility, it said.

Indonesia, with 40 percent of its debt denominated in yen, faces the danger of interest rates overshooting should the rupiah come under renewed speculative attack, the report said.