The Indonesian rupiah fell on Thursday after the central bank cut its policy rate for the 13th time in just over a year, spoke of more room to cut rates and forecast a further fall in inflation. Elsewhere, the Thai baht rallied to a fresh 10-year high of 34 per dollar, defying the central bank's remarks that it was intervening to rein the currency in.
The rest of the Asians were listless, despite the dollar's broad weakness against most other high-yielders. The rupiah fell to 9,040 per dollar from opening levels near the 9,000-per-dollar level it had straddled for the last 2 sessions. It later settled around 9,020.
"There was some position adjustment after the central bank cut rates and said there's room to cut further," said one Jakarta-based trader. The currency had risen 1.8 percent from a 3-month low of 9,145 struck on June 27 before it stalled at the start of this week. The currency is Asia's highest yielder, but analysts worry the steep rate cuts, accompanying a rapidly falling consumer inflation, could erode the currency's appeal.
The central bank cut the benchmark BI rate, which was introduced in July 2005 at 8.5 percent, by 25 basis points to a record low of 8.25 percent. The 13th cut in 14 months brought the total easing to 450 basis points. Traders however said the rupiah sell-off was temporary and an improving domestic economy and trade surplus would underpin the rupiah.
"I don't think the market is very short dollar/rupiah, so it is still a sell-on-rallies." Trading in most other currencies was quiet on Thursday following the US Independence Day holiday. The dollar stayed at 26-year lows against sterling and near record lows against the euro ahead of interest rate decisions from the Bank of England and the European Central Bank.
Markets expect a rate rise from the BoE and a steady rate decision accompanied by hawkish overtones from the ECB. The baht, which inched up gradually to lock in 0.6 percent gains during the day, was buoyed by foreign capital flows into a rising stock market, despite the central bank's efforts to rein in the currency. The baht has rallied as much as 1.9 percent since last Friday and is at its highest since August 1997, during the Asian financial crisis.
It rose as high as 33.99 per dollar on Thursday. The main stock index also hit a fresh 10-year high on Thursday. Bank of Thailand Governor Tarisa Watanagase said on Thursday the central bank has been trying to slow the baht's sharp rise this week.
Finance Minister Chalongphob Sussangkarn said the baht's rise this week is probably temporary, fuelled by the increased capital inflows into the stock market.
"I think it's firm because of capital inflows and a strong trade surplus," said Thio Chin Loo, a currency strategist at BNP Paribas. "But with declining yields and an expensive baht, I don't think it is as attractive as others such as ringgit, peso or Singapore dollar."