Asian currencies slid on Monday, led by the Philippine peso and Indonesian rupiah, as disappointing economic activity data from China clouded the outlook and the yuan weakened in response to a rate cut by the People’s Bank of China.
The peso gained 1.5 percent last week on expectations of a rate hike in the Philippines in August, but turned down on Monday, falling 0.3 percent. The Philippine peso fell more than 8 percent in the first seven months of the year.
Analysts at ING, DBS Bank and OCBC Bank expect the Philippines to continue raising rates by 50 basis points in August, after a sharp 75 basis point hike in July, to contain inflation at a four-year high.
DBS Bank released a report arguing that overall inflation has not peaked and will continue to soar, which may prompt policymakers to firmly raise interest rates to ensure that inflation does not spiral out of control.
Interest rate policy also weighed on the yuan, with a rate cut that could increase the rate gap between the PBOC and other major central banks and raise the risk of capital outflows, with the yuan down 0.3% against the dollar at 6.7589 to the dollar.
Analysts at Maybank said that China’s latest report shows weak domestic demand, rationalizing the action to cut interest rates, but in the face of the zero epidemic policy, the sluggish real estate market, and the possible slowdown in global growth, the effect of interest rate cuts will also be limited, and should be viewed with caution RMB.
The rupiah turned 0.4 percent lower on Monday after rising for two straight days. The rupiah fell 4% in the first seven months of this year and rebounded more than 1% in August.
The baht fell 0.3% on Monday as Thailand’s second-quarter GDP came in worse than expected, and while the economy grew at its best pace in a year after easing virus restrictions, inflation and a slowdown in China’s economy still weighed on its nascent recovery trend.