South Korea's central bank stepped up intervention to pull back the won from its weakest levels in a year on Friday while India's central bank insisted it was merely smoothening volatility as it hauled the rupee from a 28-month trough.
* S.Korea sells $4 bln, pulls won up 1.2 percent
* India's central bank (RBI) prefers tact, says not targeting forex (FX) rate
* Philippines says not planning capital controls
Despite the intervention, the won appeared to be on course for its biggest week of losses since early 2009 after investors and fund managers continued liquidating positions in emerging markets as they braced for a worsening risk environment.
The sell-off has gathered momentum through this month as the euro area crisis deepens, centered on a fiscal meltdown in Greece, and more weakness shows up in U.S. and global growth indicators.
The G20 pledged to prevent the euro zone's sovereign crisis, but did not announce new specific measures, prompting investors to keep cutting bets on emerging Asian currencies ahead of the weekend.
The won has lost 10.6 percent against the dollar so far this month. Others such as the Indian rupee and Indonesian rupiah have shed between 6 and 7 percent.
Several Asian central banks, including those in Thailand, South Korea and the Philippines, have stepped into markets this week, selling dollars and putting a floor under their weakening currencies.
Indonesia went one step ahead and bought long term bonds on Thursday.
I think central banks are reluctant to let the market dictate currency direction completely and they are very fearful that in times like these that the market moves can become very one-sided as everybody rushes to the exit, said Jonathan Cavenagh, Senior Fx Strategist with Westpac Institutional Bank in Singapore.
I don't think that they are trying to alter the current trends but prevent an unwind of positioning like what we saw during the Asian financial crisis.
The approach has, however, been varied across the emerging market universe. Brazil intervened by selling $2.75 billion in currency swaps, rather than selling its dollar reserves outright. Peru's central bank placed $181 million in deposit certificates to halt the sol's fall .
Sources at the Reserve Bank of India (RBI) said the central bank's reluctance to intervene too aggressively stemmed from realisation that their currency reserves are limited, the country runs a huge current account deficit and there is broad-based volatility across markets.
The rupee has been the worst performer among major Asian currencies, and touched a two-year low against the dollar on Thursday as global investors dumped high yielding riskier assets and opted for safe-haven government bonds.
If we do intervene at all, it will be with a very narrow objective of smoothening what might be a very volatile market situation, nothing beyond that, Deputy RBI Governor Subir Gokarn told a television channel in India on Friday.
India's central bank has been among the most hawkish with interest rates, though, in its fight to curb high inflation at home.
South Korea pledged to defend its weakening won on Friday and the local forex authorities were suspected of dumping an estimated $4 billion in the market on Friday.
The won went on to close at 1,166.0 per dollar on Friday, after touching a session high of 1,150, compared to a close of 1,179.8 on Thursday.
The intervention came after Brazil's central bank unexpectedly decided to sell $2.75 billion in currency swaps on Thursday to protect the sliding real threatening to damage the economy and spur inflation.
INDONESIA BUYS BONDS, TAIWAN INTERVENES
Indonesia's central bank intervened too and bought government bonds on Thursday to prop up the rupiah which has fallen sharply as foreign investors bail out.
Bank Indonesia bought 1.74 trillion rupiah of government bonds as it tried to stabilize a selloff. The rupiah, which had weakened about 2 percent on Thursday, recovered after the intervention.
Westpac's Cavenagh said some of the export-oriented countries in Asia might even welcome a bit of currency weakness.
They are well aware of how much capital has come into the region since the end of the global financial crisis and some of them won't mind their currencies falling on a NEER (nominal effective exchange rate) basis, particularly those economies that are reliant on manufactured exports.
Yet, Cavenagh said, these central banks would be wary of letting exchange rates fall too far, given the possibility of another round of quantitative easing by the U.S. Federal Reserve, which would push more inflationary flows into Asia. Last month, Japan intervened and it has repeated calls for another round as the strong yen hurts an export-reliant economy that struggles to recover from the aftermath of the March earthquake.
We've been saying all along that we will take decisive action against speculative, excessive yen rises that deviate from economic fundamentals, Finance Minister Jun Azumi said at a news conference on Thursday evening in Washington DC where the G20 leaders gathered.
Meanwhile, Taiwan intervened on Friday as the central bank unloaded $300 million to prop up the Taiwan dollar , which had posted its biggest one-day fall in 10 years on Thursday.
The central bank in Taiwan had allowed the currency to rise earlier in the year and faced criticism from the island's powerful exporters over its strength.
Taiwan's central bank is relatively more stringent and actively manages the Taiwan dollar, frequently intervening to smooth volatility. The island was an early user of capital controls, banning foreign funds from time deposits in November 2009 and introducing a requirement in January 2010 giving foreign investors a week to pull out funds unless the money went into stocks.
A central bank official in Taiwan said small Asian economies, like itself, had small deficits, low debt-to-GDP ratios, high foreign reserves and better growth rates than Europe and U.S.
The big fall in the Taiwan dollar should just be a temporary phenomenon, he said.
