Asia Will Cap Currencies as Inflation Low, Brown Brothers Says
May 03, 2010, 11:32 PM EDT
By Patricia Lui
May 4 (Bloomberg) -- Asian central banks are likely to stick with policies of capping appreciation in local currencies given that inflation “remains under control,” according to a research note from Brown Brothers Harriman & Co.
South Korea’s won advanced to its strongest level since 2008 last month, while the Indonesian rupiah reached its highest since 2007, threatening to push up the cost of exports in overseas markets. Taiwan’s dollar dropped in the last two minutes of trading yesterday as the central bank intervened, according to two traders, who declined to be identified.
“We believe that Asian central banks will for the most part continue to fight appreciation pressures by buying dollars,” Win Thin, a New York-based senior currency strategist at Brown Brothers, wrote yesterday. “Core inflation in the region remains under control.”
Korea’s won has gained 4.4 percent against the dollar so far this year to trade at 1,114.25 as of 11:43 a.m. in Seoul, according to data compiled by Bloomberg. It reached 1,102.85 on April 26, the strongest level since September 2008. Indonesia’s rupiah climbed 4.1 percent to 9,018, and last month touched 8,989, the highest since July 2007. The Thai baht has advanced 3 percent to 32.31.
Currency Outlook
The won will appreciate to 1,050 by the end of 2010, the rupiah will strengthen to 8,975 and the baht will gain to 31.5, the median estimates of economists surveyed by Bloomberg show.
Central banks intervene by buying or selling currencies to try and influence exchange rates. Appreciation helps lower import costs.
Core inflation in Indonesia was 3.7 percent from a year earlier, compared with 3.56 percent in March, and below the 3.72 percent median forecast by economists surveyed, government data yesterday showed.
Indonesia’s central bank seeks to keep the rupiah at about 9,000 to the dollar, senior deputy governor Darmin Nasution said last week. The nation’s foreign-exchange reserves as of April 29 exceeded $77 billion, he said. The holdings rose to $72 billion in March from $70 billion a month earlier, and compared with $66 billion at the end of last year, according to data compiled by Bloomberg.
Indonesia Intervention
“Bank Indonesia has been defending the 9,000 level in recent weeks, and that is likely to continue,” Thin’s note read. The central bank will keep its benchmark policy rate unchanged at 6.5 percent at a review tomorrow, it said.
South Korea’s core inflation index climbed 1.5 percent from a year earlier, identical to the increase in March. Thailand’s core inflation rate was 0.5 percent, lower than the 0.6 percent median estimate of economists.
Both the Bank of Korea and the Bank of Thailand are likely to keep policy rates unchanged at 2 percent and 1.25 percent, respectively at their next meetings, Thin wrote. A rate increase in either country is likely in the third quarter at the earliest, the note read.
May 03, 2010, 11:32 PM EDT
By Patricia Lui
May 4 (Bloomberg) -- Asian central banks are likely to stick with policies of capping appreciation in local currencies given that inflation “remains under control,” according to a research note from Brown Brothers Harriman & Co.
South Korea’s won advanced to its strongest level since 2008 last month, while the Indonesian rupiah reached its highest since 2007, threatening to push up the cost of exports in overseas markets. Taiwan’s dollar dropped in the last two minutes of trading yesterday as the central bank intervened, according to two traders, who declined to be identified.
“We believe that Asian central banks will for the most part continue to fight appreciation pressures by buying dollars,” Win Thin, a New York-based senior currency strategist at Brown Brothers, wrote yesterday. “Core inflation in the region remains under control.”
Korea’s won has gained 4.4 percent against the dollar so far this year to trade at 1,114.25 as of 11:43 a.m. in Seoul, according to data compiled by Bloomberg. It reached 1,102.85 on April 26, the strongest level since September 2008. Indonesia’s rupiah climbed 4.1 percent to 9,018, and last month touched 8,989, the highest since July 2007. The Thai baht has advanced 3 percent to 32.31.
Currency Outlook
The won will appreciate to 1,050 by the end of 2010, the rupiah will strengthen to 8,975 and the baht will gain to 31.5, the median estimates of economists surveyed by Bloomberg show.
Central banks intervene by buying or selling currencies to try and influence exchange rates. Appreciation helps lower import costs.
Core inflation in Indonesia was 3.7 percent from a year earlier, compared with 3.56 percent in March, and below the 3.72 percent median forecast by economists surveyed, government data yesterday showed.
Indonesia’s central bank seeks to keep the rupiah at about 9,000 to the dollar, senior deputy governor Darmin Nasution said last week. The nation’s foreign-exchange reserves as of April 29 exceeded $77 billion, he said. The holdings rose to $72 billion in March from $70 billion a month earlier, and compared with $66 billion at the end of last year, according to data compiled by Bloomberg.
Indonesia Intervention
“Bank Indonesia has been defending the 9,000 level in recent weeks, and that is likely to continue,” Thin’s note read. The central bank will keep its benchmark policy rate unchanged at 6.5 percent at a review tomorrow, it said.
South Korea’s core inflation index climbed 1.5 percent from a year earlier, identical to the increase in March. Thailand’s core inflation rate was 0.5 percent, lower than the 0.6 percent median estimate of economists.
Both the Bank of Korea and the Bank of Thailand are likely to keep policy rates unchanged at 2 percent and 1.25 percent, respectively at their next meetings, Thin wrote. A rate increase in either country is likely in the third quarter at the earliest, the note read.