China's yuan dips after rate cut, pulls most Asian currencies lower

China's yuan dips after rate cut, pulls most Asian currencies lower

* Asian currencies decline, stocks mixed

* China's yuan hits near 2-year low

* Indonesia expected to maintain rates

* S.Korean won hits lowest in over 13 yrs

By Upasana Singh

Aug 22 (Reuters) - China's yuan touched its weakest in nearly two years on Monday, dragging down most emerging market currencies, after the country's central bank cut key lending benchmarks, while investors also eyed Indonesia's central bank meeting this week.

The yuan CNY=CFXS depreciated 0.2%, its lowest since late-September 2020. The People's Bank of China (PBOC) cut its benchmark lending rate and lowered mortgage reference by a bigger margin to shore up its COVID-hit economy. The PBOC's latest move follows last week's surprise cut on key lending facilities at a time when the U.S. Federal Reserve is set on an aggressive monetary policy tightening path.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said there was more policy easing room in China, compared with the euro zone or the United Kingdom, considering China's economic growth was decelerating and inflation was not as problematic as elsewhere in the world.

However, weakening credit demand in China suggests that monetary policy through interest rates and credit channels is losing traction, he added.

"This in turn suggests greater reliance on exchange rate depreciation to bolster the economy amidst the global economic slowdown," Tan said.

Equities in China .SSEC rose 0.6% after the rate cut.

Bank Indonesia (BI), one of the few major Asian central banks that has not yet lifted interest rates from pandemic-era levels, is expected to leave its policy rate unchanged at record lows yet again on Tuesday, a Reuters poll found.

The rupiah IDR= , which has lost about 4.1% so far this year, fell 0.3% and hit a two-week low, while stocks in Jakarta .JKSE dropped 1.3%.

However, Kunal Kundu, an economist at Societe Generale, said he was expecting a 25 basis point hike on Tuesday, citing pressure on the currency as trade deficit becomes unfavourable on the back of easing commodity prices, and with current account deficit eventually turning negative.

"A contractionary fiscal stance, weakening growth prospect, BI exiting debt monetization scheme and inflation far from peaking calls for raising policy rates to support the currency and maintaining an attractive bond yield," he added.

Among other Southeast Asian currencies, South Korea's won KRW=KFTC slid 1% and hit a more than 13-year low, while Thailand's baht THB=TH slipped 0.7%.

The dollar index =USD , which measures the greenback against six major peers, hit a five-week high and further dragged most emerging currencies after more Fed officials flagged the likelihood of further aggressive monetary tightening.

U.S. Fed Chair Jerome Powell headlines a host of policy makers at Jackson Hole later this week and markets are weighing risks of a continued hawkish stance on policy.

The peso PHP= and the Singaporean dollar SGD= fell 0.3% and 0.2%, respectively, while the Philippine's benchmark index .PSI declined 2.3% and Singapore's equities .STI added 0.5%.

Separately, Thailand's economy is expected to grow by 3.0% to 3.5% this year, helped by public investments and a pick-up in the vital tourism sector, the finance minister said.

HIGHLIGHTS:

** Heavyweights Samsung Electronics 005930.KS and peer SK Hynix 000660.KS drag South Korea's benchmark index

** Indian rupee at fair value despite balance of payment problems: JPMorgan analyst

The following table shows rates for Asian currencies against the dollar at 0728 GMT.

COUNTRY

FX RIC FX

FX

INDEX

STOCKS STOCKS

DAILY YTD

DAILY YTD %

%

%

%

Japan

JPY= +0.07 -15. .N225 -0.47 0.01

90

China

<CNY=C -0.16 -6.9 .SSEC 0.61

-9.95

FXS>

3

India

<INR=I -0.12 -6.9 .NSEI -0.99 1.32

N>

4

Indonesia

IDR= -0.34 -4.2 .JKSE -1.25 7.62

7

Malaysia

MYR= -0.20 -7.1 .KLSE -0.91 -4.90

2

Philippines PHP= -0.34 -9.1 .PSI

-2.32 -5.87

6

S.Korea

<KRW=K -1.04 -11. .KS11 -1.21 -17.30

FTC>

27

Singapore

SGD= -0.20 -3.2 .STI

0.53

4.48

3

Taiwan

<TWD=T -0.27 -8.0 .TWII -1.06 -16.32

P>

1

Thailand

<THB=T -0.74 -7.3 .SETI 0.04

-1.88

H>

1


Reporting by Upasana Singh in Bengaluru; Editing by Anil D'Silva