Asian Currencies Weaken on Concern Policy Makers Will Seek to Curb Gains

Asian currencies fell, led by Singapore’s dollar and Thailand’s baht, on concern policy makers will follow China and Taiwan in imposing capital controls to curb inflows as the U.S. pumps funds into its economy.

China said yesterday it would force banks to hold more foreign exchange, while Taiwan said it will limit overseas investment in the island’s debt and money markets. Asian economies may need to take measures as monetary easing in the U.S. threatens to create asset bubbles, World Bank Managing Director Sri Mulyani Indrawati said this week.

“There is worry in emerging economies that quantitative easing will result in substantial hot-money inflows,” said Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong. “They see this as difficult to control. With the run-up in asset prices, it is understandable where this concern is coming from.”

Singapore’s dollar slipped 0.3 percent to S$1.2872 against its U.S. counterpart as of 4:56 p.m. local time, according to data compiled by Bloomberg. Thailand’s baht fell 0.2 percent to 29.58 and India’s rupee dropped 0.1 percent to 44.30.

Taiwan’s Financial Supervisory Commission said late yesterday that global funds can only invest up to 30 percent of their portfolio in the island’s bonds and money-market products. South Korea needs to cool excessive foreign capital inflows into the stock market to protect its financial system, the central bank said Nov. 4.

Thailand Concerns

The Federation of Thai Industries asked the government to come up with “tougher measures” to stem gains in the baht, which strengthened to a 13-year high of 29.46 today.

“Business operators can’t adjust themselves because the baht moves too excessively,” Payungsak Chartsutipol, the group’s chairman, said in Bangkok today. “We want the government to impose tougher measures, like taxes on short-term inflows.”

Concerns that quantitative easing by the U.S. will lead to a surge in capital flows to emerging markets have been overblown, World Bank President Robert Zoellick said.

“Some of the concerns have been overstated,” Zoellick said in a Bloomberg Television interview in Singapore today. “Even if you didn’t have quantitative easing, as long as you have differential growth rates you’re going to see capital flow to these emerging markets.”

Asia’s developing economies will expand 9.4 percent in 2010, outpacing the 2.7 percent pace in advanced countries, the International Monetary Fund forecast on Oct. 6.

G-20 Meeting

South Korea’s won rose after overseas investors added to holdings of the nation’s stocks and ahead of the Group of 20 meeting starting in Seoul tomorrow.

“Investors seem to be betting that the won will resume its gain after the Group of 20 summit wraps up, and a stronger currency is beneficial to foreign investors who hold South Korean equities,” said Kim Young Joon, head of equity at NH-CA Asset Management Co., which oversees the equivalent of $9 billion.

The currency gained 0.3 percent to 1,110.26 per dollar, reversing a loss of as much as 0.5 percent, after the People’s Bank of China set the yuan’s reference rate 0.2 percent stronger at a record 6.6450. The spot rate climbed to 6.6330, the highest level since 1993

China told some lenders, including Bank of Communications Co., to increase their reserve ratios by half a percentage point, a person with direct knowledge of the matter said. The increases will be effective Nov. 15, said the person, who asked not to be identified as the orders weren’t public. A press official at the People’s Bank of China declined to comment. China today posted a larger-than-estimated $27 billion trade surplus for October.

Elsewhere, Taiwan’s dollar rose 0.1 percent to NT$30.600 and Indonesia’s rupiah advanced 0.2 percent to 8,893. The Philippine peso was little changed at 43.37.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Frances Yoon in Seoul at fyoon2@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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