Asian currencies declined, led by the Philippine peso, on speculation global funds are withdrawing money from emerging-market assets after the International Monetary Fund warned of “protracted” economic instability.
Investors based abroad yesterday sold more stocks than they bought in the Philippines, where interest rates are more than 1%age higher then the US The region’s currencies, including the Malaysian ringgit, are reversing gains since the Federal Reserve cut rates last week to aid the world’s biggest economy and one of the largest buyers of Asian exports.
“The currency is weaker on renewed jitters on the impact of the sub-prime crisis,” said Jonathan Ravelas, market strategist at BDO Unibank in Manila. “We can’t underestimate the effect of sub-prime, because recent events like the Federal Reserve cut signaled the US economy is headed into a tailspin.”
The peso slipped 0.5% to 45.385 per dollar at the 4 p.m. close in Manila. The Indonesian rupiah, where the benchmark rate is at 8.25%, dropped 0.4% to 9,165 versus the dollar. The ringgit weakened 0.2% to 3.4355.
The peso also slid as the trade deficit widened to US$854 million in July, a report today showed. Imports rose 14.3%, the fastest pace in 11 months, while exports climbed 6.3% in the first seven months of the year.
The IMF said in its Global Financial Stability Report yesterday that the turmoil in debt markets will likely slow global economic growth.
“The potential consequences of this episode should not be underestimated,” the IMF said in the report. “Credit conditions may not normalize soon, and some of the practices that have developed in the structured credit markets will have to change.”
The dong extended gains to a fifth day, the longest winning streak in more than two-years, on speculation the central bank is allowing the currency to strengthen to slow inflation.
The government has a policy of devaluing the dong by about 1% a year to boost exports and economic growth. A weaker currency has quickened inflation, which reached the fastest in 17 months in August. The General Statistical Office will release consumer-price index figures for September as early as today.
“The central bank is probably a little concerned about inflation and is allowing some gains” in the dong, said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd in Melbourne. “This may be preemptive work before the inflation numbers, which may be a bit nasty.”
The currency rose 0.1% to 16,113 against the dollar, according to prices from HSBC Holdings Plc, the longest run of gains since July 26, 2005. The dong has reached a three-month high since September 18 after the State Bank of Vietnam devalued it 0.6% in the previous six months.
Vietnam hasn’t changed its policy of seeking a weaker currency, Nguyen Dong Tien, a deputy governor of the State Bank of Vietnam, said yesterday. “In setting the daily exchange rate of the dong against the US dollar, we have to look at the market’s movement and can be flexible.”
Elsewhere, the Singapore dollar dropped 0.2% to S$1.5004 and the Thai baht was little changed at 34.22 per dollar onshore. Markets were closed in Taiwan and South Korea for a second day of national holidays.