Baht’s sudden drop shows battle lines drawn

Baht’s sudden drop shows battle lines drawn

(Reuters photo)
(Reuters photo)

The baht plunged as much as 1.8% on Thursday, the biggest decline since 2007, to 30.226 against the dollar in early Asia trading. That almost erased all the gains it made in the past three sessions.

"It’s likely to be central bank intervention given that the central bank has mentioned that they’ll be fighting against baht strength," said Mingze Wu, a foreign-exchange trader at INTL FCStone in Singapore. It may also have been due to traders betting the baht will strengthen overextending their positions, he said.

The currency appreciated almost 9% in 2019, the best performer in Asia, as its large current-account surplus lured investors seeking haven assets during an intensifying US-China trade war. Authorities have battled markets to keep gains in check, taking measures including interest-rate cuts and easing rules on outflows.

Liquidity in the currency market is normalising even as the baht remains volatile, Bank of Thailand assistant governor Vachira Arromdee said on Thursday. There still remains sharp fluctuations in the baht as the market adjusts to the buying and selling of dollars, she said.

New measures?

The central bank remains concerned about the baht’s appreciation and is ready to consider additional measures, according to minutes of its Dec 18 rate meeting released on Thursday.

The government also weighed in, with Prime Minister Prayut Chan-o-cha saying on Thursday that the need for new currency measures is being considered. A joint commission between the central bank and the finance ministry has also been formed to tackle the issue, Gen Prayut added.

The baht had jumped as much as 0.9% to breach 30 per dollar on Monday, prompting a statement from the central bank playing down the surge. It said an imbalance in demand and low market liquidity during the holidays had impacted the currency.

The country's reserves and current-account surplus are key factors luring investors to the baht. The central bank’s foreign-cash pile stands at $222 billion, while the current-account surplus was $3.38 billion in November.

Policy makers need to encourage overseas investments by local investors to trim the current-account surplus, said Stephen Innes, chief Asia market strategist at AxiTrader in Bangkok. Domestic investors’ risk bias is to stay at home and the barrier to change that behavior is “massive,” he said.


Do you like the content of this article?
COMMENT (16)

Cambridge college hands back looted African sculpture

CAMBRIDGE (UNITED KINGDOM) - A Cambridge University college will hand over to Nigeria an African bronze looted over a century ago, in the first return of its kind by a British institution.

27 Oct 2021

SE Asian states announces new strategic pact with Australia

BANDAR SERI BEGAWAN: Australia and the Association of Southeast Asian Nations (Asean) agreed at a summit on Wednesday to establish a "comprehensive strategic partnership", a sign of Canberra's ambition to play a bigger role in the region.

27 Oct 2021

US says Assange will not face supermax jail in renewed extradition bid

LONDON: The United States sought to assure a British court Wednesday that Julian Assange would not be held at a federal supermax prison, as it appealed a decision to block his extradition on the grounds he is a serious suicide threat.

27 Oct 2021