Central banks act to counter currency spikes

BOT chief admits seeing signs of bubbles in stock, property markets on back of inflows

From dollar selling in Indonesia to a new foreign exchange-related measure in Malaysia, Asean nations are apparently countering the recent unscrupulous movement of their currencies against the US dollar, fuelled by massive capital inflows and, in some cases, speculative investment.

While pinpointing no particular measures, Prasarn Trairatvorakul, governor of the Bank of Thailand, admitted yesterday that there are some signs that bubbles are forming, particularly in the stock market and parts of the property market, due to foreign inflows, which would not stop amid the supportive global situation.

The Stock Exchange of Thailand Index yesterday rose further to 1,478.77 points on turnover of Bt56 billion. Foreign investors continued to be major players, with their net buys reaching Bt14.7 billion so far this month.

In the Thai bond market, as of Monday, foreign net-buys in January exceeded Bt100 billion.

Malaysia and Indonesia are facing the same trend. Foreign ownership of Malaysian bonds rose by US$8.4 billion (Bt250 billion) in the first 11 months of 2012, compared with a full-year increase of $4.9 billion in Indonesia and $6.6 billion in Thailand.

In the past six months, the Malaysian ringgit has appreciated 3.3 per cent against the greenback, compared with a 5.3-per-cent advance in the Thai baht, according to data compiled by Bloomberg. Indonesia's rupiah declined 2.1 per cent.

Malaysia's currency may gain 2.1 per cent this year, compared with 0.4 per cent for the baht and 0.7 per cent for the rupiah, the median estimates of analysts in Bloomberg surveys show.

The situation was exacerbated by possible manipulation by traders in Singapore.

Yesterday, Bank Indonesia said it sold dollars to boost onshore supply of the greenback and improve investor confidence, as it steps up intervention to help narrow the gap between the onshore and offshore exchange rates.

"Bank Indonesia's assurance reduces the perceived foreign-exchange risk for investors as it demonstrates its commitment to keep the rupiah at a stable level," said Mika Martumpal, a currency analyst at Bank CIMB Niaga in Jakarta.

Malaysia's Bank Negara told banks to use a ringgit fixing that was set domestically to settle foreign-exchange contracts, amid an ongoing probe of manipulation of offshore reference rates for non-depository forwards in Singapore, which are used to settle forward contracts involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam.

While traders make quick profits from such fixing manipulations in conjunction with the Libor scandal, this arbitration is believed to fuel rises in the currencies.

Prasarn said some institutions had their licences ripped off them for speculating on the baht's movement - for bringing in foreign capital without underlying assets - but in the past few weeks there was no sign of such speculation.

Yesterday, the Bank of Thailand heeded the seven proposals from the Federation of Thai Industries for short-term relief from the baht's rise. One proposal is to make foreign investors separate their investment accounts to identify "hot money".

Prasarn said that unlike China, which is gradually opening its economy, it is too late for Thailand to do that. Thailand's financial market is open and such a rule would impose a huge back-office burden, he said.

The other six proposals are for the central bank to minimise baht changes, keep the baht aligned with neighbouring currencies - particularly the ringgit and rupiah - relax foreign currency holding rules, simplify hedging requirements for the sake of SMEs, amend more rules to promote overseas direct investment, and accelerate public and private infrastructure investment projects.

The inflows raise the risk of overindulgence, he said. "It's hard to foresee, but there will be some symptoms, like the recent bullishness in the stock market or excessive property transactions in some areas. It's not that the risks are already here, but it requires us to be on alert," he added.