Asian exporters, battling a slump in demand, are calling for their central banks to intervene after capital inflows contributed to the best start to the year on record for the region’s currencies.
Executives at LG Chem Ltd, South Korea’s biggest chemicals maker, and Bangkok-based Chengteh Chinaware (Thailand) Co said policymakers should curb volatility, while TLtek Co, an exporter of auto-part making machines based on the outskirts of Seoul, cites the won’s strength against the euro for its currency losses. The chairman of the Malaysian -American -Electronics Industry, which represents US companies such as Motorola Inc, and Dell Inc, said the central bank should “stabilize the ringgit.”
Asian policymakers switched focus to spurring economic growth after slowing inflation prompted Indonesia, the Philippines and Thailand to cut interest rates in the past six months. The ringgit, won and Chinese yuan climbed more than 5 percent against the euro in the past year, making exports less competitive as Europe’s debt crisis damps demand. The Bloomberg-JPMorgan Asian Dollar Index tracking regional currencies against the greenback rose 2 percent this year, the most since the data goes back to 1995.
“The central bank should intervene in case gains in the won quicken and threaten tolerable levels,” said Owen Sung, chief spokesman at LG Chem in Seoul, in a Feb. 28 interview. “A sudden rally in the won will hurt our export earnings.”
Policymakers are more likely to focus on the slowdown in global growth rather than the threat of rising oil prices on inflation, according to Sameer Goel, the head of Asian rates and currency strategy at Deutsche Bank AG in Singapore. Crude reached a 10-month high of US$110.55 on Thursday and has risen 8.3 percent this year.
“The export cycle has definitely been slowing down,” he said. “There’s a less obvious reason for them to allow appreciation to tackle imported inflation at this stage of the cycle, unless oil prices remain a persistent concern.”
Money that policymakers in Europe and the US are pumping into their economies is finding its way to Asia, where interest rates are higher. Emerging-market bond funds attracted record inflows of US$2.14 billion in the first week of last month and US$8.7 billion this year, according to data compiled by Cambridge, Massachusetts-based research firm EPFR Global.
Expanding capital inflows have an inflationary effect and complicate policymaking, Philippine Central Bank Governor Amando Tetangco said at a forum in Manila on Feb. 28.
Bank Negara Malaysia is seeking an “orderly” market and does not see a threat of imported inflation, Bank Negara Malaysia Governor Zeti Akhtar Aziz said on Feb. 27. Bank of Thailand Deputy Governor Suchada Kirakul said on Feb. 29 it had intervened “a little bit” in the fourth week of last month. Bank Indonesia Governor Darmin Nasution said on Feb. 10 that the monetary authority had an intervention strategy to preserve stability.
Brazil is ready to take more measures to stem a rally in the real, the world’s third-best performing major currency this year, after broadening the scope of a tax on foreign loans and bonds, Brazilian Finance Minister Guido Mantega said on Thursday.
Asian nations, whose foreign-exchange reserves dropped at the height of the emerging-market sell-off in September, will probably intervene to replenish their holdings, New York-based Goldman Sachs Group Inc analysts Robin Brooks and Stacy Carlson wrote in a report on Thursday.
Developing Asia may grow 7.3 percent this year, compared with an earlier forecast of 8 percent and an expansion of 7.9 percent last year, the IMF said in a report last month.
Currency intervention is a valid instrument for emerging-market central banks to use to “achieve sustained and stable growth,” the IMF wrote in the Feb. 29 report.
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