The baht fell beyond the 31-to-the-US-dollar mark Wednesday to its weakest in nine months as foreign investors kept unloading Thai equities and bonds amid growing fears that the US Federal Reserve will rush to cut back stimulus.
The local currency slipped to briefly hit the day's low of 31.18 against the greenback before bouncing back to 30.93/97 as the stock market pared some losses in the afternoon.
The baht has fallen from its 16-year peak of 28.55 on April 19 amid a mix of negative factors such as capital outflows, which began after Fed chairman Ben Bernanke's recent remark that the US central bank would scale back asset buying if economic growth is sustained.
- SET sell-off rages...: ...but brokers upbeat
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said funds are being repatriated from Thailand, Indonesia and the Philippines after a flood of capital into the region.
"We should let it [the baht] adjust naturally. There's no need for concern," he said.
"The recent run-up in the stock market was propelled by foreign capital inflows, and most of it was hot money, so it is not a surprise to see fund outflows now."
Mr Kittiratt said US$12 billion has flowed to Thailand since mid-2012, a big factor in the baht's earlier appreciation.
Investors are locking in profit after buying Thai shares at relatively low prices in recent years, he said.
"Hot money flowing out of the country will not be a threat, but capital flows will become more balanced," said Mr Kittiratt.
"Most fund inflows in the past came to speculate in bonds and equities, prompting the baht's appreciation, and that's difficult to handle."
Mr Kittiratt repeatedly stated his opposition to any measures to control capital flows at the moment.
Ministerial regulations have authorised the Bank of Thailand to set a minimum period for offshore investors to hold Thai bonds and to force investors to hedge against foreign exchange fluctuation as a deterrent to arbitrage.
The central bank would need approval from the Finance Ministry before enacting such measures.
A currency dealer at a local bank, speaking on condition of anonymity, said the carry trade is unwinding after the dollar and yen reversed their recent trends, speeding capital outflows.
Carry trade involves borrowing in lower-yielding currencies to invest in higher-yielding ones.
The baht's retreat could last awhile until foreigners' selling pressure becomes diminished, the dealer said, expressing optimism that funds will return to the Thai markets once stocks and bonds fall to attractive levels.
Foreign investors were net sellers of Thai stocks and bonds yesterday at 1.47 billion baht and 5.85 billion, respectively, raising the totals to 42.1 billion and 51.7 billion since May 23.