The Bank of Thailand (BoT) intervened in the foreign exchange market after the baht declined 0.5% to 31.08 to the US dollar on Thursday morning, as the Thai stock market plunged for the third consecutive day.
Finance Minister Kittiratt Na Ranong (left) and Central Bank governor Prasarn Trairatvorakul at Euromoney Conference: The Greater Mekong Investment Forum in Bangkok. (Photo by Apichart Jinakul).
Central Bank governor Prasarn Trairatvorakul said the baht's recent depreciation was not worrying because other currencies in Southeast Asia had also weakened.
The level of fluctuation of the baht was low when compared to other regional currencies.
"In this case, the BoT has already sold some US dollars to prevent further fluctuation, but we won't move against the market trend," Mr Prasarn said.
Finance Minister Kittiratt Na-Ranong said the weakening baht would benefit Thai exporters, who have long complained the baht was over valued, but admitted it would probably hurt the import sector.
"I would like the central bank to help stabilise the baht by using our large international reserves as a buffer to ease the impact (on importers) and keep the currency stable and in line with our trading partners and competitors, and not just rely on the US dollar," Mr Kittiratt said.
The Thai currency traded 0.4% off a nine-month low Thursday and government bonds dropped as overseas investors reduced holdings of the country's assets amid a worsening global economic outlook, according to Bloomberg News.
The World Bank on Wednesday cut its 2013 growth forecast for developing countries to 5.1% from a January estimate of 5.5% and lowered China to 7.7% from 8.4%, the report said.
China is Thailand's biggest export market after purchasing 12% of total shipments in the first four months of the year. The baht declined 0.5% to 31.08 per dollar as of 9.22am in Bangkok, according to data compiled by Bloomberg. It touched 31.19 on Wednesay, the weakest level since Sept 7. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed nine basis points to 7.36%, a level last seen in December 2011.
International investors sold US$1.1 billion more Thai equities than they bought this month and pulled a net $205 million from bonds, official data showed.
"The weakening currency discourages foreign investors from the nation's stocks and bonds," said Yuji Kameoka, chief foreign-exchange strategist at Daiwa Securities Co in Tokyo. "The impact from China's slowdown is quite large on Asia through its exports, while growth concerns are leading to risk-off sentiment."
Mr Prasarn said the Thai stock market plunged more than 70 points on Thursday morning. This was likely due to the sharp sell-off in the bourse as investors expect the US economy to improve.
"The capital outflow is not yet worrying because the amount is not much when compared to the reserves of 180 billion dollars," the BoT chief said. "We cannot tell when the outflow stops because it's an external factor."
The Thai stock market opened in the morning with the plunge by 50.90 points or 3.62% from the close on Wednesday to stand at 1,381.57 point. The index moved in the negative zone for the whole day with the lowest point was at 1,351.95, or dropped 81.52 points.
The SET index rebound in the afternoon to close at 1,403.27 points, down 30.20 points or 2.11 % in total trade of 85.39 billion baht.
SET index drops at significant points for the third day. (Photo by Patipat Janthong)
The Thai bourse has experienced a big sell-off since Tuesday. The index has dropped by 125.28 points or 8.19% from Monday's close at 1,528.55 points.
Analysts and regulators agree that the plunge caused from external factors, especially the improvement in the US credit rating.
Info Quest reported that the European stock markets in London and France also dropped at their opening in the afternoon (Thai time) due to worry over the cut in global economic growth projection to 2.2% in 2013, slightly lower than earlier projection in January at 2.4%. Developing countries will lead the growth with 5.1%.
However, the World Bank concluded that the economic risks appeared to be diminishing and the growth is more stable than the post-2008 financial crisis which the US caused the global economy into recession.