The baht tumbled Tuesday after China's record devaluation of the yuan jolted currencies and financial markets across the world.
The local currency at one point sank to 35.38 to the US dollar from 35.09.
However, the baht's 0.79% fall was far smaller than that of other Asian currencies. The yuan dropped 1.86% to 6.325 to the dollar, within the 2% limit of the 6.2298 reference price allowed by the central bank. The Singapore dollar tumbled 1.31%, South Korea's won lost 1.36%, the Taiwanese dollar fell 1.27% and the Australian dollar plunged 1.13%.
A Bangkok Bank currency exchange booth on Sukhumvit Road posted new currency rates after the yuan slumped Tuesday following the Bank of China's decision to devalue its currency to combat a slump in exports. (Photo by Somchai Poomlard)
The Chinese central bank's surprise cut of its reference rate by 1.9% came just days after data showed its exports fell in July for a fifth straight month.
China's unprecedented move also dragged down Asian stock markets led by Jakarta's composite index, which plunged 2.66% to a 17-month low as investors were concerned the cheaper yuan would threaten export-oriented countries.
The SET index lost 11.81 points or 0.83% to close at 1,408.32 in moderate turnover of 33.9 billion baht.
Foreign investors unloaded Thai shares with a net position of 1.21 billion baht, taking the year-to-date amount of the sell-off to 50.2 billion baht.
Krisada Chinavicharana, director-general of the Fiscal Policy Office, expects the cheaper yuan will prove a boon to export-dependent countries including Thailand by boosting China's exports and increasing its demand for raw materials.
China is Thailand's biggest export destination. Thai shipments to the world's second-largest economy amounted to 1.06 trillion baht in the first half of this year, accounting for 14.8% of overall exports. Thailand's exports to China last year totalled 2.06 trillion baht, representing 14%.
Finance Minister Sommai Phasee disagrees with a further cut in the policy rate to weaken the baht, saying it would hurt depositors.
A potential rate hike next month by the US Federal Reserve has triggered the baht's retreat, and the current level of the local currency has already priced in the rate reversal, he said.
Chantavarn Sucharitakul, the Bank of Thailand's assistant governor for financial market operations, said the yuan devaluation sparked a tumble in regional currencies because financial markets saw these Asian economies had considerable trade relations with China.
"Although the weakening yuan has affected market sentiment in the short run, the long-term impact must be assessed as to whether greater flexibility of the yuan could benefit China's economic reform, while the depreciating yuan could be positive for China's economic growth, which would benefit regional trade as well," she said.
Kobsit Silpachai, head of capital markets research at Kasikornbank, predicts the baht will briefly reverse its downward trend to reach 34 to the dollar after the US increases its interest rate.
Stock prices fell worldwide on the yuan devaluation. The Stock Exchange of Thailand index dropped 11.81 points. (Reuters photo)
However, it will swing back to 35.25 by year-end on expectations the US will jack up the rate by another 75 basis points over the next 12 months.
Vallop Vitanakorn, vice-chairman of Thai National Shippers' Council, said it was still too early to predict the effect on exports to China, as the baht was also weak.
However, Thai products are likely to encounter higher competition, particularly in the Asean market, which is also a major market for China, he said.
Mr Vallop urged exporters to focus more on reducing production costs and expanding exports to the US, Cambodia, Laos, Myanmar and Vietnam to stave off direct competition with China.