Asia Currencies Rally This Week, Led by Won, on Rate Increases

July 10 (Bloomberg) -- Asian currencies gained this week as signs economic expansion is gathering momentum prompted central bankers in South Korea and Malaysia to increase borrowing costs, underpinning fund inflows into the region.

The won climbed to a two-week high after the Bank of Korea unexpectedly yesterday raised interest rates for the first time since August 2008, and said the economy will see “solid growth” in coming months. The ringgit strengthened for a second day after Bank Negara Malaysia on July 8 lifted its overnight rate for the third time in 2010.

“The knee-jerk reaction has been to buy up the won and we still like Asian currencies,” said Thio Chin Loo, a senior currency strategist at BNP Paribas SA in Singapore. “They’ve been upgrading growth forecasts and they did hint as well before this about inflation picking up.”

The won appreciated 2.8 percent to 1,195.85 per dollar in Seoul from July 2, according to data compiled by Bloomberg. The ringgit strengthened 0.9 percent to 3.1965, Taiwan’s dollar climbed 0.5 percent to NT$32.125 and the Philippine peso rose 0.8 percent to 46.165.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, gained 0.6 percent from July 2. The MSCI Asia-Pacific Index of shares climbed 4 percent, its best week in seven months.

Rate Outlook

South Korea’s central bank boosted the seven-day repurchase rate to 2.25 percent from a record-low 2 percent, a move forecast by four of 14 economists surveyed by Bloomberg News. The rest predicted borrowing costs would be kept unchanged for a 17th month.

The finance ministry on June 24 raised its 2010 economic growth forecast to 5.8 percent, from a December projection of 5 percent, and said the nation needs to “normalize” fiscal and monetary policies.

Asian currencies were also supported this week after the International Monetary Fund raised its projection for global growth and U.S. data helped shore up confidence a recovery in the world’s largest economy will be sustained.

The IMF predicted a 4.6 percent expansion, the biggest gain since 2007. A U.S. report this week suggested retailers’ sales climbed in the February-June period at the fastest pace in four years and the government on July 8 said initial jobless claims decreased by 21,000 to 454,000 in the week ended July 3, lower than the median economist estimate in a Bloomberg survey.

‘Robust’ Growth

Bank Negara Malaysia lifted its overnight rate to 2.75 percent from 2.5 percent on July 8, saying recent trends in industrial production, financing activity, the labor market and exports showed growth “remained robust in the second quarter.” The ringgit has gained 7.2 percent this year, Asia’s best performance.

“The increase is justified with a background of strong economic growth,” said Akira Banno, a treasury adviser at Bank of Tokyo-Mitsubishi UFJ Bhd. in Kuala Lumpur. “This move will likely attract more foreign funds and support the ringgit.”

The local economy expanded 10.1 percent in the first quarter, the fastest pace in a decade. Government reports this month showed factory output and exports rose for a sixth month. The monetary policy stance remains supportive of growth, the central bank said.

The baht gained 0.3 percent this week to 32.33 per dollar as 11 of 17 economists surveyed by Bloomberg forecast the Bank of Thailand will raise its policy rate by a quarter point to 1.5 percent at a July 14 review. The Philippine central bank will decide on interest rates the following day.

The Singapore’s dollar gained 1.1 percent to S$1.3781 against its U.S. counterpart as analysts forecast the city- state’s economic growth accelerated in the second quarter, according to a Bloomberg survey. The government will report its preliminary estimate on July 14.

Elsewhere, China’s yuan was little changed from July 2 at 6.7735 and the Indonesian rupiah edged up 0.2 percent to 9,043. Vietnam’s dong held at 19,085, halting the biggest slide in four months last week. India’s rupee strengthened 0.3 percent to 46.665.