(Updated)

Asian stocks, currencies rattled by US inflation, Thai baht steady

Asian stocks, currencies rattled by US inflation, Thai baht steady
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BENGALURU (June 13): The baht steadied on Monday after Thailand's central bank signalled gradual rate hikes to curb inflation, while other Asian currencies were hit by unexpectedly hot US inflation and fears of an economic slowdown in China.

Indonesian rupiah fell nearly 0.9% to its lowest since May 19, while South Korea's won underperformed the most with a 1.2% drop, slipping for a third session in a row.

The baht traded largely unchanged after the Thai central bank governor said that rate rises will not be delayed for too long given the surge in inflation, prompting economists to predict an imminent hike. 

Last week, the central bank left its key rate unchanged at a record low of 0.5% in a 4-3 split vote. 

Consumer prices in the US accelerated in May, dashing hopes that inflation had peaked, and had investors scrambling to price in even steeper Federal Reserve rate hikes. 

This drove up the US dollar, pressurising other regional currencies, with the Malaysian ringgit falling 0.3%, the Indian rupee down 0.4% and a 0.4% slip in the Philippine peso.

India's rupee hit a record low in opening trade on Monday while bond yields spiked to their highest levels in more than three years.

Efforts to curtail inflation will remain in focus this week, with the Fed and the Bank of England expected to raise rates, while other central banks in emerging Asia have turned more hawkish in recent months. 

Bigger-than-expected rate hikes in India and Australia have added to the aggressive narrative in recent weeks.

Additionally, investors were also concerned about a resumption of Covid-19 lockdowns in China. 

Stock markets witnessed a sharp pullback. Equities in South Korea extended a slump to drop 3.5%, while those in Taiwan and India tumbled more than 2%. Malaysia, Jakarta and Thailand shares followed suit, down between 1.4% and 1.9% respectively.

"More volatility is expected in the (global) markets in the coming week, with stocks likely to face selling pressure and bond yields possibly inching higher," OCBC analysts said in a note.

Evolving political risks in Thailand, Indonesia and Malaysia will add to a long list of pressures already facing these economies, including the prospect of stagflation and significantly tighter monetary policy, Vishnu Varathan, a strategist with Mizuho Bank, said.

Highlights:

  • Singapore five-year benchmark yield up 22.1 basis points at 2.925%
  • Indonesian 10-year benchmark yields up 6 basis points at 7.281%
  • South Korea's foreign exchange authority said on Monday it is monitoring any speculative movement in the currency market and working to ease any herd-like behaviour.
  • The Philippine central bank governor said the country's monetary policy actions are not tied to the decisions of the US Federal Reserve