* Thai baht, S. Korean won firm about 1% each * India's RBI hikes by 50 bps * Indonesia Q2 GDP +5.4%, fastest growth rate in a year * Taiwan, China shares soar, while Malaysia falls By Sameer Manekar Aug 5 (Reuters) - The Indian rupee firmed on Friday after the Reserve Bank of India (RBI) announced its third rate hike in as many months, while the Thai baht strengthened more than 1% on potential start of policy tightening next week. The RBI raised its repo rate by 50 basis points (bps) as June retail inflation hit 7%. Economists expect more hikes ahead as inflation is seen holding at the central bank's top end of the 2%-6% tolerance band for the rest of the year. Given the risks that sustained high inflation could destabilise inflation expectations and that inflation will remain above target band for a few more months, the RBI will continue to hike rates over the next few months, Mitul Kotecha, head of emerging markets strategy at TD Securities said. "Like other Asian currencies, the rupee has benefited from a recent drop in the U.S. dollar. Having pulled back from a breach of 80, we continue to expect some consolidation in the near term." The Indian rupee firmed up to 0.7%, while the 10-year bond yields — providing one of the highest returns in the region — jumped 9.4 bps to 7.251%. The rupee was set to end the week about 0.2% in black, its third straight weekly gain. Next week, India's inflation data is expected to show that headline inflation remained above the RBI's target band in July, giving it space to continue its tightening cycle. Meanwhile, the Thai baht rose 1% as investors began pricing in the first rate hike since late-2018 as the pace of inflation remained near a 14-year high in July. Sunthorn Thongthip, a strategist at Kasikorn Securities said Kasikornbank expects the Bank of Thailand (BoT) to hike by 25 bps on Aug. 10, given "low oil price and improving tourist arrivals resulting in better current account". Kasikornbank sees the policy rate to rise to 1% by the end of this year. Tim Leelahaphan, an analyst at Standard Chartered, who also expects a 25 bps hike next week, however sees concerns lingering over narrow policy space for the BoT to move, given growing recession fears and talk of rate cuts in the U.S. next year. Standard Chartered forecasts a total 75 bps hike this year by the BoT, taking the interest rate to 1.25%, and sees a gradual interest rate normalisation path in 2023-24, Leelahaphan added. Among other currencies, the Philippine peso added 0.7% as pressure to tighten monetary policy persisted on the country's central bank on a strong inflation print for July. The unit was set to post third straight weekly gain. Analysts at ING and Barclays expect a 50 bps hike from the Bangko Sentral ng Pilipinas (BSP) on Aug. 18, after an aggregate 125 bps hike since May. Indonesia's rupiah also appreciated 0.2% as data showed economic growth in Southeast Asia's biggest economy accelerated in the June quarter, boosted by an export boom. However, rising inflation and monetary tightening clouded the outlook. Equities were largely mixed, with shares in India, South Korea and Taiwan advancing 0.3%-2%, while Malaysia fell 0.5%. HIGHLIGHTS: ** Indonesian 10-year benchmark yields falls 7.7 basis points to 7.138% ** Indonesia optimistic 5.2% 2022 GDP growth target to be achieved - govt ** Japan's economy likely rebounded in Q2 with unleashing of consumers - Reuters poll Asia stock indexes and currencies at 0639 GMT COUNTRY FX FX FX INDEX STOCKS STOCKS RIC DAILY % YTD % DAILY % YTD % Japan -0.29 -13.63 0.87 -2.14 China <CNY=CFXS +0.03 -5.80 0.91 -11.58 > India +0.28 -6.20 0.31 0.47 Indonesia +0.18 -4.38 0.19 7.43 Malaysia +0.02 -6.53 -0.49 -2.42 Philippines +0.47 -7.74 -1.08 -9.96 S.Korea <KRW=KFTC +0.91 -8.45 0.72 -16.35 > Singapore +0.02 -1.93 0.38 5.07 Taiwan +0.11 -7.63 2.27 -17.47 Thailand +0.87 -6.37 -0.12 -3.66 (Reporting by Sameer Manekar in Bengaluru; editing by Uttaresh.V)
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