China’s yuan dips after rate cut, pulls most Asian currencies lower
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China’s yuan touched its weakest in
nearly two years on Monday, dragging down most emerging market
currencies, after the country’s central bank cut key lending
benchmarks, while investors also eyed Indonesia’s central bank
meeting this week.
The yuan depreciated 0.2%, its lowest since
late-September 2020. The People’s Bank of China (PBOC) cut its
benchmark lending rate and lowered mortgage reference by a
bigger margin to shore up its COVID-hit economy.
The PBOC’s latest move follows last week’s surprise cut on
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key lending facilities at a time when the U.S. Federal Reserve
is set on an aggressive monetary policy tightening path.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets,
said there was more policy easing room in China, compared with
the euro zone or the United Kingdom, considering China’s
economic growth was decelerating and inflation was not as
problematic as elsewhere in the world.
However, weakening credit demand in China suggests that
monetary policy through interest rates and credit channels is
losing traction, he added.
“This in turn suggests greater reliance on exchange rate
depreciation to bolster the economy amidst the global economic
slowdown,” Tan said.
Equities in China rose 0.6% after the rate cut.
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Bank Indonesia (BI), one of the few major Asian central
banks that has not yet lifted interest rates from pandemic-era
levels, is expected to leave its policy rate unchanged at record
lows yet again on Tuesday, a Reuters poll found.
The rupiah, which has lost about 4.1% so far this
year, fell 0.3% and hit a two-week low, while stocks in Jakarta
dropped 1.3%.
However, Kunal Kundu, an economist at Societe Generale, said
he was expecting a 25 basis point hike on Tuesday, citing
pressure on the currency as trade deficit becomes unfavorable
on the back of easing commodity prices, and with current account
deficit eventually turning negative.
“A contractionary fiscal stance, weakening growth prospect,
BI exiting debt monetization scheme and inflation far from
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peaking calls for raising policy rates to support the currency
and maintaining an attractive bond yield,” he added.
Among other Southeast Asian currencies, South Korea’s won
slid 1% and hit a more than 13-year low, while
Thailand’s baht slipped 0.7%.
The dollar index, which measures the greenback
against six major peers, hit a five-week high and further
dragged most emerging currencies after more Fed officials
flagged the likelihood of further aggressive monetary
tightening.
U.S. Fed Chair Jerome Powell headlines a host of policy
makers at Jackson Hole later this week and markets are weighing
risks of a continued hawkish stance on policy.
The peso and the Singaporean dollar fell 0.3%
and 0.2%, respectively, while the Philippine’s benchmark index
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declined 2.3% and Singapore’s equities added 0.5%.
Separately, Thailand’s economy is expected to grow by 3.0%
to 3.5% this year, helped by public investments and a pick-up in
the vital tourism sector, the finance minister said.
HIGHLIGHTS:
** Heavyweights Samsung Electronics and peer SK
Hynix drag South Korea’s benchmark index
** Indian rupee at fair value despite balance of payment
problems: JPMorgan analyst
The following table shows rates for Asian currencies against
the dollar at 0728 GMT.
COUNTRY FX RIC FX FX INDEX STOCKS STOCKS
DAILY YTD DAILY YTD %
% % %
Japan +0.07 -15. -0.47 0.01
90
China
India
Indonesia -0.34 -4.2 -1.25 7.62
7
Malaysia -0.20 -7.1 -0.91 -4.90
2
Philippines -0.34 -9.1 -2.32 -5.87
6
S.Korea
Singapore -0.20 -3.2 0.53 4.48
3
Taiwan
Thailand
(Reporting by Upasana Singh in Bengaluru; Editing by Anil
D’Silva)
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