India’s rupee tumbled to a record, leading declines in Asian currencies this week, as investors pulled money from stock markets amid concerns that a deepening credit- market crisis will push the global economy into a recession.
The rupee dropped by the most against the greenback in more than 15 years as the Reserve Bank of India cut the cash reserve ratio for the second time in week amid a surge in lending costs between banks. Singapore's dollar reached a one-year low after the city-state became the first economy in Asia to slip into a recession. Indonesia's rupiah had the worst week since May 2006 after authorities shut the stock market for three days.
“The rupee is among the most vulnerable to the global financial stress because India has welcomed more external financing than many other countries in the region,” said Sebastien Barbe, a strategist in Hong Kong at Calyon, the investment banking unit of France's Credit Agricole SA.
The rupee traded at 48.385 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell as much as 4.4 percent from a week ago to an all-time low of 49.26, the biggest loss since March 1993. Singapore's dollar dropped 2 percent to S$1.4797 and the rupiah fell 4.4 percent to 9,860.
Asian stocks completed the worst week on record amid a sell-off that's erased more than $8 trillion of market value from global shares this month.
India's central bank on October 10 trimmed the reserve ratio to 7.5 percent from 9 percent to infuse cash into the banking system after the overnight call rate that banks charge each other surged to 23 percent from 9 percent last week. Overseas investors turned net sellers of $9.84 billion of the nation's stocks this year through Oct. 7, versus a record purchase of $19.5 billion in 2007, according to the National Stock Exchange.
Bankruptcy, recession
Eight of Asia's 10 most-active currencies outside of Japan posted weekly declines. Japan's Nikkei 225 Stock Average fell as much as 11 percent yesterday as Yamato Life Insurance Co. filed the first industry bankruptcy since 2001. New City Residence Investment Corp., a real estate investment trust, also failed.
Economists predict the U.S. economy, the world's largest, slipped into recession in the last quarter. Gross domestic product fell at a 0.2 percent annual pace in the three months through September and is expected to drop 0.8 percent this quarter, according to a Bloomberg survey. The International Monetary Fund on Oct. 8 said the global economy is headed for a recession next year.
‘Zero appreciation’
The Monetary Authority of Singapore shifted its currency policy to seek zero appreciation in the trade-weighted band for the city's dollar. It retained the band in which the currency is allowed to trade and will intervene to reduce “excessive volatility” if needed, the central bank said in a statement after its semi-annual policy review yesterday.
The city's economy shrank 6.3 percent in the three months through Sept. 30 after a 5.7 percent contraction in the second quarter, according to an advance estimate from the Ministry of Trade & Industry on the same day.
Indonesia's rupiah completed a third weekly loss, breaching the 9,800 level for the first time since January 2006. Stock trading was halted on Oct. 8 after the Jakarta Composite Index plunged 10 percent for the second time in three days. Even with the shortened trading period, this week's 22 percent slide in the benchmark was the steepest in two decades.
“The sudden shut-off of the exchange has chilled investor sentiment toward the Indonesian market,” said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. “There will be a very big plunge in Indonesia stocks and that in turn will prompt the currency to depreciate sharply.”
Won intervention
South Korea's won had its biggest jump since March 1998 yesterday after a meeting among financial regulators prompted speculation that the government will step up support for the currency.
Deputy Finance Minister Shin Je Yoon said on Oct. 7 that the government will check for speculative forces in the currency market. Key financial institutions will maintain “close cooperation” so they can quickly respond to any market changes, the Prime Minister's Office said in a statement yesterday.
“There's no other way to explain the won's rally than intervention,” said Oh Suk Tae, an economist with Citigroup Inc. in Seoul. “The hefty intervention worries me rather than gives comfort that the market will stabilize.”
The won rose 5.4 percent to 1,309 versus the dollar, paring this week's decline to 6.5 percent, according to Seoul Money Brokerage Services Ltd. The currency climbed as high as 1,225, after earlier dropping as low as 1,460.
Finance Minister Kang Man Soo said yesterday he will meet his counterparts from Australia and Japan in Washington to discuss cooperation to stem the contagion in financial markets. Global banks have incurred $591 billion in writedowns since the collapse of the U.S. subprime mortgage market in early 2007.
‘Feel the pinch'
Malaysia's ringgit fell 1.2 percent this week to 3.5125 per dollar and touched a one-year low of 3.5171. A government report yesterday showed industrial output grew in August at the slowest pace in 16 months. Growth will be slower than the official estimates of 5.7 percent in 2008 and 5.4 percent in 2009, Second Finance Minister Nor Mohamed Yakcop said in Dubai on Oct. 8.
“More economies will be staring into a recession while stock markets are on a downswing and everyone will feel the pinch,” said Nor Alfian Din, a senior currency trader in Kuala Lumpur at Maybank Islamic Bhd., a unit of Malaysia's biggest lender. “Asian currencies will be affected and it'll just be a question of relativity. The ringgit isn't the worst off.”
Elsewhere, the Thai baht declined 0.4 percent this week to 34.33 per dollar and the Philippine peso dropped 1.3 percent to 47.670. China's yuan gained 0.2 percent to 6.8357 and Vietnam's dong was little changed at 16,590. Taiwan's dollar lost 0.8 percent to NT$32.437.
The author is a Bloomberg News columnist. The opinions expressed are his own.
