The Bank of Thailand's moves to counter hot-money inflows that have pushed the baht to a six-year high and the central bank's vow to impose more measures if such speculative flows linger rattled the local currency and the stock market on Friday.
The baht weakened to 30.91 per US dollar from 30.61 on Thursday after the central bank announced measures aimed at taming short-term speculative flows, before rebounding to 30.80 later.
The benchmark SET index slipped to Friday's trough of 1,728.36 points on a knee-jerk reaction to the announcement. It bounced back slightly to close the day at 1,731.59, down 0.5%, in brisk turnover worth 70.7 billion baht.
Foreign investors were still net buyers of Thai shares at 457 million baht on Friday, albeit down from net buys of 1.24 billion on Thursday, 3.25 billion on Wednesday and 1.86 billion on Tuesday.
The central bank's move came days after officials hinted at imposing measures to cool hot-money inflows.
The baht is the top-performing currency in Asia, up 5-6% against the greenback year-to-date.
Non-residents eyed
Vachira Arromdee, the Bank of Thailand's assistant governor for financial market operations, said the central bank will lower the cap on the outstanding balance of a non-resident account from 300 million baht per person to 200 million baht, effective from July 22.
After the measure goes into effect, financial institutions are required to notify non-resident account holders to maintain their outstanding balance at the end of day of their non-resident baht account (NRBA) and non-resident baht account for securities (NRBS) at a maximum 200 million baht, down from 300 million, she said.
If NRBAs are non-financial corporations with underlying trade and investment in Thailand, have opened accounts directly with Thai financial institutions and want to seek waivers on the outstanding balance limit, they can submit requests to the central bank and their petitions will be considered on a case-by-case basis, Ms Vachira said.
The central bank is also tightening the reporting requirements for non-residents holding debt securities issued in Thailand. The names of end beneficiaries for all non-residents' holdings of Thai debt securities will be reported from this month.
"The central bank will continue to closely monitor the baht's movements, as well as non-resident behaviour, and stand ready to use additional measures if undesirable speculative behaviour persists," Ms Vachira said.
Chantavarn Sucharitakul, assistant governor for corporate strategy and relations, said yesterday's measures were part of a plan to tamp down short-term inflows.
"The evaluation could take some time because the measures don't take aim at immediate outcomes but are preventive measures to cushion impacts from future short-term inflows," she said.
Hot money to fade
The central bank's latest measures are expected to efficiently reduce hot money from speculation, said Trinity Securities managing director Visit Ongpipattanakul.
Recent foreign fund inflows moving into the Thai bond and equity markets could become capital outflows going forward, Mr Visit said.
"On Thursday, foreign investors were net sellers of short-term bonds of about 3.4 billion baht, while year-to-date net inflows were worth about 130 billion," he said.
Non-resident net outflows from Thai debt securities logged 3.76 billion baht on Thursday, while month-to-date net outflows were registered at 2.45 billion, according to data from the Thai Bond Market Association.
Offshore funds remain net inflows into domestic bonds, worth 562 million baht on a year-to-date basis, down from inflows worth 3.2 billion seen in the first half.
The latest central bank measures are not expected to affect sentiment in the stock market in the long run, as global interest rates are on a downward trend after the US Fed sent a clear signal of an imminent rate cut, Mr Visit said.
"If [offshore] speculative inflows decline, this would be positive for [Thailand's capital] market because the movement of bonds and equities will be driven by real fundamentals," he said.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said the baht's reaction to the central bank's measures was immediate, as seen by the fact that the baht fell to 30.86 against the US dollar after the announcement from 30.70.
The measures will dampen investor sentiment for the baht in the short run but no one can predict the currency's movement next week, Mr Kobsidthi said.
He said the Bank of Thailand's measures will ease pressure on the private sector, which had requested a looser monetary policy to weaken the baht.
The central bank's Monetary Policy Committee is expected to keep the policy rate unchanged at 1.75% amid the flagging economy and tourism sector, shrinking exports and swelling household debt.
Ariya Tiranaprakit, senior executive vice-president of the Thai Bond Market Association, said the central bank's measures prompted a bond yield spike as investors speculated that policymakers would impose additional measures if fund inflows remain massive.
"Fund inflows to bonds make the baht stronger, while the rising current account surplus attracts capital inflows," she said.