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WRAPUP 1-Asian c.banks scramble to contain currency strength

Published 01/11/2010, 05:28 AM
Updated 01/11/2010, 05:30 AM

* Intervention seen in S.Korea, Indonesia, India, Singapore

* Korean official vows further action on won, if necessary

* Concerns that rapid currency gains may hurt recovery

By Kevin Yao

SINGAPORE, Jan 11 (Reuters) - Several Asian central banks intervened on Monday in an effort to temper the rally in their currencies as the dollar weakened broadly, highlighting fears that rapid currency rises may hurt economic recovery.

Central banks in South Korea, Indonesia, India and Singapore were spotted buying U.S. dollars to contain their currencies, driven up by the dollar's weakness and expectations that China's strong exports data may prod Beijing to allow the yuan to rise.

"I think Asian central banks are watching the pace of currency appreciation," said Thio Chin Loo, currency strategist at BNP Paribas in Singapore. "They are cautiously optimistic about the economy and don't want to prick the nascent recovery."

In a sign that concerns over strengthening currencies were not unique for emerging markets, the head of Swiss National Bank said on Monday that the central bank will fight any excessive rise of the Swiss franc against the euro, hinting at a possible intervention.

In Seoul, a senior finance ministry official, speaking after the authorities were seen buying dollars, warned that the authorities would act further to temper the won if necessary.

"We are worried that the foreign exchange market is leaning excessively one way," Kim Ik-joo, head of the ministry's international finance bureau, told Reuters.

"We are closely watching foreign exchange rates and we will take proper measures if necessary," Kim said.

Dealers said, the authorities tried to prevent the won from rising past the 1,200-per dollar level, though the currency briefly hit 1,114.9 per dollar, its strongest in more than 15 months, and closed on the stronger side of the 1,200 mark.

The won has gained 4 percent against the dollar so far this month, making it the top performer among nine emerging Asian currencies tracked by Reuters.

The rising won also intensified purchases of Korean bonds by foreigners, along with the view that rate rises will be slower coming in the year ahead, with the buying, in turn, pushing the won further up.

Confronted with a steady stream of investment funds betting that Asia will continue to lead the global economic upturn, the region's authorities have been using both verbal and market intervention to cool of the pressure on their currencies.

Taiwan went a step further last week, unveiling new controls to curb speculative inflows, giving foreign short-term investors betting on currency gains a week to invest their funds in stocks or pull out.

In Indonesia, the authorities were also spotted trying to stem the rise of the high-yielding rupiah, which jumped as much as 1 percent on Monday, and the central bank said it would keep on buying dollars to rein in its currency.

In Singapore, the central bank was also seen buying dollars as the Singapore dollar hit a one-month high and in India, state-run banks were spotted buying the U.S. currency after the rupee rose 1 percent to its highest in more than 15 months.

The rupiah has gained 3 percent against the dollar so far this month, making it the second best performer in Asia. (Additional reporting by Vidya Ranganathan in SINGAPORE, Lee Soo-jung in SEOUL and Swati Bhat in MUMBAI; Editing by Tomasz Janowski)

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