Asia Currencies Climbed Most in 2011 This Week Amid Gain in Yield Premiums

Asian currencies strengthened this week by the most in almost three months on speculation regional central banks will increase interest rates further to curb inflation, boosting yield premiums over developed nations.

Philippine policy makers joined China, India, South Korea, Indonesia and Thailand in raising borrowing costs this year by lifting the benchmark rate a quarter percentage point to 4.25 percent on March 24, the first increase in more than two years. Overseas investors bought $793 million more Indonesian, South Korean and Thai equities than they sold in the first four days of this week, exchange data show. The MSCI Asia-Pacific Index of shares rallied the most this year during the week.

“Gains in stocks and yield differentials are encouraging inflows of funds into the region, supporting the currencies,” said Shigehisa Shiroki, chief trader in the Asian and emerging- markets team at Mizuho Corporate Bank Ltd. in Tokyo.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies, gained 0.6 percent from a week earlier to 116.95 yesterday after touching 117.04, the highest level since 1997. South Korea’s won climbed 1.1 percent this week to 1,114.20 per dollar, India’s rupee jumped 1 percent to 44.68 and Malaysia’s ringgit rose 0.8 percent to 3.0260, according to data compiled by Bloomberg.

Developing economies in Asia may grow 8.4 percent this year, more than triple the 2.5 percent pace for advanced economies, according to estimates by the International Monetary Fund released in January. Benchmark policy rates in Indonesia and India are 6.75 percent and South Korea’s borrowing costs are 3 percent, compared with a maximum of 0.25 percent in the U.S. and Japan.

Further Rate Increases

The Philippine peso completed a weekly gain after the central bank signaled further rate increases may be needed to tame inflation. The currency strengthened 0.9 percent to 43.31 per dollar.

“The peso reacted positively to the rate increase,” said Marcelo Ayes, a Manila-based senior vice president at Rizal Commercial Banking Corp. “Overall, risk appetite has improved.”

The won touched 1,112.65 yesterday, the strongest level since Feb. 21, as foreign investors bought a net $601 million of South Korean stocks this week through March 24, according to exchange data. The MSCI Asia-Pacific Index climbed 3.9 percent this week.

Malaysia Inflation

Malaysia’s ringgit rose to a 13-year high and had its first weekly advance in three as a report yesterday showed consumer prices in Southeast Asia’s third-largest economy rose 2.9 percent in February from a year earlier, the most since April 2009. The median forecast in a Bloomberg survey of economists was for a gain of 2.7 percent.

“Inflation is rising across the region while economic growth in Asia remains resilient,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “Therefore we can expect the tightening cycle in Malaysia to continue.”

Elsewhere, Indonesia’s rupiah advanced 0.6 percent for the week to 8,714 per dollar, according to data compiled by Bloomberg. Taiwan’s dollar rose 0.4 percent to NT$29.488, China’s yuan gained 0.18 percent to 6.5576 and the Thai baht added 0.2 percent to 30.26. Singapore’s currency strengthened 1.2 percent to S$1.2608.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

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

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