Baht hit by fed tapering and rallies

The baht had its biggest weekly decline in four months and government bonds fell after the Federal Reserve announced it would reduce stimulus that has fuelled demand for emerging-market assets.

The currency touched a three-year low today as anti- government protesters rallied on the streets of Bangkok to attract support ahead of a major demonstration planned for Dec 22. The main opposition Democrat Party will meet tomorrow to decide whether to boycott the general election on Feb 2. The Fed said this week it will cut its monthly bond purchases to US$75 billion in January from $85 billion previously.

“The depreciation in the baht was triggered by the Fed’s tapering,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp in Bangkok. “In the short-term, the baht will remain under a gradual weaker bias. Thailand’s political uncertainty will probably make it hard for investors to buy Thai assets.”

The baht fell 1.8%t this week to 32.63 per dollar as of 3:38pm in Bangkok, according to data compiled by Bloomberg. That’s the most since the period ended Aug 23. The currency, which dropped 0.5% on Friday, touched 32.65 earlier, the weakest level since June 2010. It has lost 4.3% this quarter.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 15 basis points this week to 6.39%. The gauge increased seven basis points, or 0.07 percentage point, today.

The Fed will taper its bond buying in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of 41 economists yesterday.

The baht’s weakness is in line with the region after the Fed’s move while the central bank is prepared for any possible impact, Bank of Thailand spokeswoman Roong Mallikamas told reporters today. Political uncertainties may affect the currency, she added.

Capital is expected to flow out of Thailand because of the reduction in stimulus, Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said in national television broadcast yesterday. Global funds pulled a net $178 million from Thai bonds and equities in the first four days of this week, official data show.

The yield on the 3.625% bonds due June 2023 rose one basis point this week to 4.04%, data compiled by Bloomberg show. The rate was little changed on Friday.

Share your thoughts

Discussion 1 : 22/12/2013 at 09:20 AM
This issue will get much worse. Who would have faith in the currency of Thailand given the issues taking place now. Nothing can be done now (e.g. infrastructure spend), and Thai people are learning that you do not need to respect institutions, as politicians show them that you need only protest on the street, illegally occupy buildings, and refuse to participate in democratic processes if you want to get your way. Who would invest here in the coming months???
Discussion 2 : 21/12/2013 at 02:50 PM
The other day someone from the Bank of Thailand said what the US Fed was doing would have no impact here. Guess they missed something...
Discussion 3 : 21/12/2013 at 12:07 PM
The former "white lies", ( 50 % untrue) are now "Gray" ( 70 % untrue),and heading toward "black" ( 100 % damned lie ),swiftly !
Discussion 4 : 21/12/2013 at 01:45 AM
Really we're at the point where it's hard to believe anything reported from the Government, whether one is for or against them. I'm becoming a contrarian when I read the news…no effect on tourism, no effect on the baht, no effect on property sales. Automatically means the opposite is likely true!
Discussion 5 : 21/12/2013 at 12:19 AM
Oh please. If there were no protests and no taper, the baht would still be in a terrible state. Thailand's household debt is in the danger zone. Bank defaults are rising. Exports are down. Labor is too expensive compared to all neighboring nations (Thank you, Madame Yingluck). And rice schemes, house schemes, car schemes and a host of other programs have pulled forward demand and created swelling levels of debt. The baht is in a precarious state. The protests and the taper are just the final nudge off the edge of the cliff.
Discussion 6 : 20/12/2013 at 08:53 PM
Everything ok continue to rip off the tourists
Discussion 7 : 20/12/2013 at 06:25 PM
It was yesterday. But one must remember that our Ministers are prone to tell us white lies.
Discussion 8 : 20/12/2013 at 05:11 PM
was it yesterday ot today that the finance minister said the 10billion reduction in stimulus would have no effect on Thai makets he has to be the misinformed or non informed in the business of finance in the entire world

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