Asian Currencies Strengthen, Led by Ringgit, on Interest-Rate Outlook

Asian currencies rose, led by Malaysia’s ringgit and South Korea’s won, on speculation central banks will raise interest rates to combat inflation.

The ringgit climbed to its strongest level since September 1997 after Bank Negara Malaysia said it is focused on taming rising prices. India’s rupee reached a 12-week high after the country’s central bank raised its benchmark rate by more than economists forecast today. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, advanced after Republicans and Democrats failed to agree on a plan to tackle U.S. debt, spurring a dollar sell-off.

“There’s still room for higher rates, not just in Malaysia but across most economies in Asia that are still facing inflation threats,” said Nik M. Khairul, a currency trader at Asian Finance Bank Bhd. in Kuala Lumpur. “We expect the U.S. will do all it can to avoid a default or an economic crisis.”

The ringgit strengthened 0.6 percent to 2.9535 per dollar as of 6 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The won appreciated 0.4 percent to 1,051.95, India’s rupee climbed 0.4 percent to 44.2275, the Philippine peso gained 0.4 percent to 42.225, and Thailand’s baht advanced 0.2 percent to 29.71.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six major trading partners, dropped 0.6 percent to 73.647.

Malaysian Inflation

Obama called on lawmakers to put politics aside to agree on raising the debt ceiling before an Aug. 2 deadline to avoid default. U.S. House Speaker John Boehner and Senate Majority Leader Harry Reid unveiled proposals to tackle the debt problem yesterday. Obama endorsed Reid’s plan and said last night that Boehner’s measure is simply “kicking the can further down the road.” Both sides will have to compromise further, he said.

Bank Negara Malaysia Governor Zeti Akhtar Aziz said yesterday a lot of attention is being paid to dealing with inflation because it erodes purchasing power.

Malaysia’s consumer prices rose 3.5 percent in June from a year earlier, the most since March 2009, the government said on July 20. Bank Negara Malaysia kept its overnight policy rate at 3 percent on July 7, after lifting it once in 2011 and three times in 2010. Policy makers next meet on Sept. 8.

Indian Rate Surprise

The Reserve Bank of India increased the repurchase rate to 8 percent from 7.5 percent. None of 22 economists surveyed by Bloomberg News predicted the move. Twenty forecast a quarter- point rise, while the rest expected no change.

India’s benchmark wholesale-price inflation gauge, which accelerated to 9.44 percent in June, may remain near 10 percent until November, according to HSBC Holdings Plc and Yes Bank Ltd.

“While the 50-basis point hike was an aggressive move, this is not the end of it,” said Leif Lybecker Eskesen, the Singapore-based chief economist for India and Southeast Asia at HSBC. “The RBI is seriously concerned about anchoring inflation expectations and we expect the policy rate will reach at least 8.25 percent this year.”

The won rose after the central bank said economic growth will accelerate and on speculation exporters converted overseas earnings. Growth will pick up in the second half of the year and policy makers will tackle inflation, central bank Deputy Governor Kim Jae Chun said in an interview yesterday. The won has rallied 1.5 percent this month as global funds bought $1.5 billion more South Korean shares than they sold, according to exchange data.

“The BOK’s comments on the economy are supportive of the won, which will likely continue its strong momentum into the second half,” said Bae Jin Chul, a Seoul-based dealer at the state-run Industrial Bank of Korea. “The market is receiving a steady flow of month-end dollar sales from exporters as well.”

Elsewhere, the Singapore dollar strengthened 0.4 percent to S$1.2025 against its U.S. counterpart. China’s yuan appreciated 0.06 percent to 6.4414, Taiwan’s dollar advanced 0.1 percent to NT$28.829, and Indonesia’s rupiah gained 0.2 percent to 8,507.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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