Currency Woes Spread as Speculators Attack

Many emerging-market currencies weakened further Monday and early today, as speculators and investment funds sold the currencies on the expectation of widespread devaluations.

The Thai baht and the Philippine peso, both of which were officially devalued over the last two weeks, fell further Monday, although the baht appeared to stabilize early today.

The baht tumbled to a record-low 30.80 to the dollar Monday before the Thai central bank intervened to support it. Early today it was trading at about 30 to the dollar.

The peso, however, opened at 30 to the dollar today, weaker than Monday’s level of 29 to the dollar.

Meanwhile, the Indonesian rupiah also fell to a new low against the dollar, and the Malaysian ringgit fell to a 17-month low after the nation’s central bank declined to intervene in the market.

Early today, Malaysia’s acting prime minister, Anwar Ibrahim, said the ringgit was a victim of speculation and was not overvalued. “I believe it is returning [to normalcy] already,” he said.

Yet the Malaysia central bank has been keeping interest rates at the highest levels in a decade to help support the ringgit.

Malaysia’s central bank “may be trying to do an ambush,” said Neil Saker, head of regional economic research at SocGen Crosby Research in Singapore. “The ringgit is under intense pressure now.”

The Thai and Philippine devaluations were akin to a dam breaking, analysts say: Mounting economic problems in Southeast Asia triggered rumors in recent months that official devaluations were likely--a way to reignite economic growth by slashing the cost of exports--but until the Thai government finally succumbed to devaluation pressures, speculators were held back.

Now they are seeking out other currencies that are probable candidates for devaluation. Governments either must defend their currencies using precious dollar reserves or give in to speculators.

The fallout was also felt in Eastern Europe, where the Czech koruna fell to a record low against the dollar Monday.

Traders sold koruna because many still think in terms of “one big block of emerging-market currencies,” said Petr Korous, head of the corporate bond desk at Ceskoslovenska Obchodni Banka in the Czech Republic capital of Prague.

The koruna was also hurt when the Czech National Bank’s governor, Josef Toskovsky, suggested the central bank may let the currency depreciate rather than spend hard currencies to keep it stable.

“You’re getting a contagion effect from the nervousness about all the Southeast Asian currencies,” said Seema Desai, a regional economist at Schroders Securities in Singapore.

Meanwhile, stock markets were mixed Monday amid the currency turmoil. Thailand’s benchmark index sank 2.6%, while Malaysia’s main index fell marginally. Early today, the Philippines’ main index slid 2%.