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EMERGING MARKETS-Rupiah stumbles as rate cut looms, baht eases on budget gap

Rashmi Ashok
·3-min read

* Graphic: World FX rates * Graphic: Foreign flows into Asian stocks * Rupiah slips 0.6%, Indonesian stocks hit one-week high * Fed's accommodative stance may support inflows into Asia-analyst By Rashmi Ashok July 2 (Reuters) - Indonesia's stocks and currency were driven in opposite directions on Thursday by rising bets for a rate cut, while the baht drifted lower on Thailand's plans for a bigger budget deficit to revive its coronavirus-battered economy. The rupiah fell 0.6% and was on track for its sixth straight losing session, after data on Wednesday showed Indonesia's inflation rate slowed further in June to hover slightly below the central bank's target range. ANZ Research analysts expect Bank Indonesia to cut rates in the third quarter - the fourth time this year - while those at ING say it will be "hard-pressed" to loosen policy in the near term given the depreciation pressure on the rupiah. The central bank agreed on Monday to buy low-yielding bonds to help the government fund a bloated fiscal deficit. "The currency has faced some weakness in recent days given the risk-off tone as COVID-19 cases spike in Indonesia and others parts of the globe with investors also growing uneasy over plans for the central bank to monetise debt," analysts at ING wrote in a note. "We expect the rupiah to face depreciation pressure in the coming days with the central bank stepping up its triple intervention while sentiment remains fragile." 'Triple intervention' refers to BI's intervention in the domestic non-deliverable forwards market, the spot foreign exchange market and the bond market to stabilise the rupiah. Indonesian stocks, however, rose 1% to a one-week high, buoyed by rate optimism and firmer regional share markets. The baht eased 0.3% after Thailand's parliament began debate on Wednesday on a budget bill that projects a larger deficit for the 2021 fiscal year starting Oct. 1, as the government tries to prop up its flagging economy. "We note that robust current account surplus was one factor anchoring baht positivity earlier and this is at threat now," analysts at Maybank wrote. Meanwhile, the U.S. Federal Reserve's dovish policy stance in latest minutes was seen supporting inflows to emerging Asia. "These discussions underscore that the Fed is keen to maintain accommodative policy for a prolonged period," said Wei Liang Chang, macro strategist at DBS Bank. "This should reassure markets, supporting portfolio flows into Asia. Nevertheless, episodic COVID-19 resurgence could keep Asian FX gains contained, as risks of a reintroduction of lockdowns are not absent." HIGHLIGHTS: ** Malaysia's 10-year benchmark yield fell 3.1 basis points to 2.95% while its 3-year yield eased 0.2 bp to 2.224%​​ ** Top gainers on the Jakarta stock index include Bank Oke Indonesia Tbk PT up 33.73% and Global Teleshop Tbk PT up 31.51% ** Top gainers on the Singapore STI include City Developments Ltd up 1.52% and Singapore Technologies Engineering Ltd up 1.52% Asia stock indexes and currencies at 0344 GMT COUNTRY FX RIC FX FX YTD INDEX STOCKS STOCKS DAILY % DAILY YTD % % % Japan -0.02 +1.05 0.65 -5.88 China <CNY=CFX +0.06 -1.49 1.13 0.33 S> India +0.00 -5.57 0.00 -14.29 Indones -0.63 -2.80 0.83 -21.34 ia Malaysi +0.02 -4.53 0.39 -4.31 a Philipp +0.08 +1.77 1.33 -19.49 ines S.Korea <KRW=KFT +0.26 -3.66 0.76 -3.41 C> Singapo +0.01 -3.52 0.33 -18.74 re Taiwan +0.46 +2.13 0.65 -1.81 Thailan -0.39 -3.70 0.41 -14.23 d (Reporting by Rashmi Ashok in Bengaluru; Editing by Jacqueline Wong)