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Asian currencies slipped on Monday, with the Philippine peso and Indonesian rupiah leading losses as disappointing activity data in China clouded the outlook, while the yuan fell after the central bank cut two key interest rates.

The peso started the week on a negative note, weakening 0.3% after firming 1.5% the prior week as expectations of a rate hike on Aug. 18 supported the currency that has lost more than 8% in the first seven months of the year.

The Bangko Sentral ng Pilipinas (BSP) is widely expected to continue with its monetary tightening after an outsized 75 basis point (bps) hike in mid-July, although a similar big move is not expected later this week.

Analysts at ING, DBS and OCBC expect a 50 bp hike to its key overnight borrowing rate to contain inflation, hovering near four-year highs.

“Yet-to-peak and still rising headline inflation … is likely to keep policymakers resolute in their fight to tame increasing price pressures and ensure inflation expectations are not unanchored,” DBS analysts said in a note.

In China, a spate of bearish economic data - factory and retail activity - underscored the surprise decision by the People’s Bank of China (PBOC) to cut its interest rates on key lending facilities for the second time this year to prop up the economy.

That pressured the yuan, which slipped 0.3% to 6.7589 per dollar, and further raises risks of a downtrend on rising capital outflows as a rate divergence between the PBOC and other major central banks widens.

“The latest activity report underscores anaemic domestic demand and justifies the unexpected medium-term lending facility (MLF) rate cut,” analysts at Maybank said.

“But lower interest rates may only provide some relief in the face of drags from COVID-zero policies, property market malaise and potential slowdown in global growth,” they added, describing yuan sentiment as a “tad cautious” in the interim.

In Indonesia, the rupiah was down 0.4%, after strong gains in the prior two sessions.

The currency has firmed more than 1% in August so far on the back of a nascent economic recovery. It lost 4% in the first seven months of the year.

Bank Indonesia (BI), one of the few laggards in the region that has yet to begin monetary tightening, is set to meet next week against the backdrop of strong second-quarter growth and soaring inflation.

Asian currency bears retreat as inflation view improves

Elsewhere, the Thai baht eased 0.3% following weaker-than-forecast second quarter GDP data. The economy grew at its fastest pace in a year in the April-June quarter on eased COVID-19 restrictions but inflation and China’s slowdown remain a drag on its nascent recovery.

Among regional stocks, shares in the Philippines and Thailand advanced 0.3% each, while those in Singapore, Indonesia, and Malaysia remained largely unchanged.

Markets in India and South Korea were on a holiday.

Highlights:

** Indonesian 10-year benchmark yields rise 8.4 basis points to 7.055%

** China July industrial output up 3.8%, missing Reuters poll of 4.6%

** Japan April-June GDP expands annualised 2.2%, misses forecast

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