Emerging market - Indonesian rupiah jumps on foreign inflows, most other Asian currencies subdued

JAKARTA, March 24 (Reuters): The Indonesian rupiah rose more than 1% on Friday, aided by foreign inflows as trading resumed after a two-day holiday, while most other Asian currencies were subdued over mixed signals from the US Federal Reserve about future rate hikes.

For the week, however, currencies in the region were set to eke out gains. The Malaysian ringgit, the Thai baht, the Philippine peso, and the Indonesian rupiah all were on track for their second straight weekly rise.

Globally, traders continued to analyse Fed comments for clues about the US central bank's future monetary policy.

Currently, markets are pricing in rate cuts of accumulated 80 basis points to about 4% by the end of the year amid fears that policy tightening and a brewing banking crisis could drive the US economy into a recession.

"Liquidity strains stemming from deposit flight have resulted in some duress across US and European banks. However, we see limited risks of contagion to Asian banks, given different business models and risk factors," said Chang Wei Liang, FX & credit strategist at DBS Group Research.

Malaysia posted a faster-than-expected rise in February consumer inflation to 3.7%. In January, the consumer price index had also risen 3.7%.

"Given the sticky core inflation, we continue to expect the Bank Negara Malaysia to deliver another 25 basis-point (bps) rate hike in May," said analysts at Goldman Sachs.

"Although we see risk of a no hike should core inflation decelerate significantly in the next couple months or if the BNM sees signs of banking system instability."

Meanwhile, Singapore said its February industrial production (IP) fell 11.7% month-on-month on a seasonally adjusted basis. "IP collapsed in February, the main drag being the usually volatile biomedicals cluster.

That said, there are signs of a bottoming out in semiconductor output," said Brian Tan, an analyst at Barclays Bank.

"We reduce our 2023 GDP growth forecast to 1.8% from 2.2% and continue to expect the MAS (Monetary Authority of Singapore) to refrain from further FX policy tightening in 2023."

The Bank of Thailand is expected to hike its interest rates by about 25 bps at its policy meeting next week. Equity markets in Asia were mixed, with Jakarta rising more than 1%, while Malaysia dipped 0.6%. - Reuters

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