BoT shores up market stability

BoT shores up market stability

Reserves down by $7 billion as central bank buys up bonds to blunt virus impact

The Bank of Thailand is seeking to shore up market stability after a jump in bond yields stoked concerns that stresses are building up.

The central bank pledged late Friday to ensure sufficient liquidity for markets to function well as it announced an emergency interest-rate cut of 25 basis points to counter the economic shock of the coronavirus outbreak.

The surprise move to reduce the prime rate to 0.75% came just days before the next scheduled meeting of the Monetary Policy Committee (MPC). Observers believe the MPC, which normally meets every six weeks, might make another move when it convenes on Wednesday if conditions warrant it.

“We have been running down international reserves and providing baht liquidity to facilitate the normal functioning of the financial market,” Bank of Thailand assistant governor Chantavarn Sucharitakul said in an email to Bloomberg on Saturday.

The central bank has said that it spent more than 100 billion baht from March 13 to 19 to buy government bonds. Foreign reserves were $229.2 billion on March 13, down $7.1 billion from a week earlier, the biggest such drop since 2008.

The coronavirus crisis has created funding stresses across the world after upending a range of investments and sparking a dash for cash. There are indications that some wealthy investors in Thailand have been making mutual fund redemptions, according to Maybank Kim Eng Securities (Thailand).

The policy rate reduction announced on Friday will take effect on Monday. In its statement, the central bank said the overall financial system was stable but added the virus outbreak had affected the functioning of Thai markets.

“Interbank borrowing typically takes one to two hours to clear but currently takes about half a day,” Maria Lapiz, head of research at Maybank Kim Eng Securities (Thailand), said on Friday.

The Stock Exchange of Thailand has plunged 29% this year, though it led Asia on Friday with an 8% gain, and the baht is Asia’s second-worst performing major currency. The yield on the 10-year Thai government bond jumped to 1.68% on Friday from 0.83% on March 9.

Foreign investors have pulled out a net $4.6 billion from stocks and bonds so far in March, according to data compiled by Bloomberg.

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