Thailand's baht weakened beyond 31 per US dollar for the first time since September as international investors cut holdings of the country's assets amid speculation the US Federal Reserve will trim its monetary stimulus.
As the baht exchange rate weakened to a nine-month low, the finance minister said he was happy with the outflow of foreign capital, which weakens the baht and boosted confidence in the food industry, which fell in May.
The MSCI Asia Pacific Index of shares fell 0.7% on Wednesday and has lost 8.9% since May 22, when Fed Chairman Ben Bernanke said policy makers could reduce the US$85 billion a month in bond purchases should there be a sustained improvement in the jobs market. Global funds sold $921 million more Thai stocks than they bought this month through Tuesday, and pulled a net $158 million from bonds, official data show.
Photo by Thanarak Khoonton
"Funds are leaving Thailand and that is weighing on the baht," said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. "Fund movements by foreign investors are a major driver for the baht, while both importers and exporters have taken a wait-and-see attitude."
The baht fell 0.3% to 31.08 per dollar on Wednesday morning at Bangkok exchanges, and even touched 31.10 earlier, the weakest level since September, 2011, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 22 basis points, or 0.22 percentage points, to 7.32%. The gauge last reached that level in December 2011.
The yield on the 3.625% government bonds due June 2023 rose one basis point to 3.99%, the highest level since September 2011, data compiled by Bloomberg showed.
Meanwhile, Finance Minister Kittiratt Na-Ranong said on Wednesday the continuing outflow of short-term foreign capital is useful in terms of monetary policy, and has helped stabilise the policy and exchange rates.
He said the outflow had made it unnecessary for government to impose other available measures to stabilise the baht at this time.
However, the baht's movement will be closely monitored to ensure economic policies are in line with the changing situation, Mr Kittiratt said.
The capital outflow was partly caused by foreign investors’ concern that the US would gradually stop implementing its quantitative easing measures, he said.
In addition, foreign investors, having made profits from their investment in the Thai stock market over the past two years, sold shares while adjusting investment portfolios in Thailand and in other markets in the Asian region, he added.
The minister said more than $12 billion had flowed into Thailand’s stock and bond markets before the end of 2012, strengthening the baht and creating a problem.
The National Food Institute at the Industry Ministry said on Wednesday that the confidence index of the food industry for May stood at 47.4 points, reflecting that confidence of food manufacturers was worsened.
However, the confidence prediction for the coming three months was 53.4 points, showing rising confidence among food industry operators, it said.
Considered item by item, meat was the only product where producers had higher confidence in May. Exporters of rice and producers of rice flour, processed aquatic animals, vegetables, fruits, seasoning products and other food had less confidence in the immediate future of their businesses, the institute said.
Most manufacturers were confident of improving business in the next three months, except rice and rice flour where confidence was lower on weak trade competitiveness, because of higher prices than competitors such as Vietnam and India.
Moreover, there was insufficient raw materials for processing and exporting as most rice is now kept in government stockpiles.
Food manufacturers surveyed in May expressed concern that the problems of foreign exchange fluctuation, insufficiency of raw materials, the 300-baht minimum wage, increasing oil prices and state bureaucracy would be negative factors that could affect business.
They said all these concerned business obstacles would still remain over the next three months.