Goldman ups forecast for six Asia currencies

ANALYST'S VIEW

Goldman Sachs Group Inc, the world's largest securities firm by market value, raised its three-month forecasts on six Asian currencies as signs of accelerating inflation and growth change central banks' policy.

"There is evidence that foreign-exchange intervention strategies are changing across the region," Goldman's analysts Fiona Lake, Jens Nordvig and Thomas Stolper wrote in a note yesterday. "In an environment of rising inflation risk, a stronger currency may be a very powerful policy tool."

India's rupee will climb to 39.50 against the US dollar, up from a previous forecast of 41.30. The Malaysian ringgit will rise to 3.33, compared with a prior prediction of 3.41. The Philippine peso will advance to 43.50 from a projection of 45.50.

Singapore's dollar will gain to S$1.45 compared with the old forecast of S$1.51 and Taiwan's dollar will strengthen to NT$32.00 from a prior estimate of NT$32.50. The Thai baht will appreciate to 32.00, instead of 35.00.

Inflation quickened to a two-year high of 3.08 per cent in Taiwan in September and a 12-year high of 2.9 per cent in Singapore. The Philippine economy expanded 7.5 per cent in the three months to June 30, the fastest pace in two decades. India's economic growth accelerated to 9.3 per cent in the second quarter, the most in almost a year.

Morgan Stanley & Co, the second-biggest US securities firm, also raised its forecasts on six Asian currencies as inflation and surging investments pressure central banks to let exchange rates appreciate.

"Investor sentiment regarding the emerging markets is much more robust than we thought," Stephen Jen, head of currency research in London, wrote in a note released yesterday. "We were too cautious."

Morgan Stanley raised forecasts for the Chinese yuan, Korean won, ringgit, baht and the Singapore and Taiwan dollars.

Fourteen of the 17 currencies of Asia's largest economies appreciated against the US dollar in the past year, with India's rupee having the third-best performance of 16 per cent, behind the Australian and New Zealand dollars.

"We have seen evidence of bigger foreign-exchange moves in a number of Asian countries," the Goldman analysts wrote. "The relatively moderate increases in reserves in Korea, Singapore and Taiwan in recent months point to a less aggressive intervention stance."

South Korea's foreign-exchange reserves rose 0.8 per cent to $257.3 billion in September from the previous month, according to Bank of Korea data.

Goldman estimated the total intervention by the Bank of Korea, the Monetary Authority of Singapore and the Central Bank of Taiwan and compared that estimate with the average monthly appreciation in the won and in the Singapore and Taiwan dollars.

"The intervention in September was very moderate relative to the size of appreciation," the analysts wrote. "There is an underlying shift in intervention strategies taking place."