Baht shows lit­tle strain from US rate in­crease

The Nation - - BUSINESS -

THE BAHT slightly de­pre­ci­ated against the US dol­lar af­ter the US Fed­eral Re­serve raise its bench­mark rate by 25 ba­sis points amid ex­pec­ta­tions of two more in­creases this year. For­eign cap­i­tal has been flee­ing Thai­land with for­eign sales of Thai stocks worth about Bt146 bil­lion so far this year.

Ac­cord­ing to the Bank of Ayud­hya’s Global Mar­kets Group, the Thai cur­rency has been mov­ing in the same di­rec­tion of its re­gional peers.

From the end of May, the Thai baht has de­pre­ci­ated by 0.5 per cent, the Philip­pines’ peso by 1.5 per cent, Ja­panese yen 1.25 per cent, Korean won 0.45 per cent, In­dia ru­pee 0.28 per cent and In­done­sian ru­piah by 0.26 per cent.

The Fed’s rate hike is ex­pected to fur­ther en­cour­age the out­flow of for­eign cap­i­tal to high-yield mar­kets, the bank said, adding that the baht would likely re­turn to an up­trend to­wards the end of the year if the Bank of Thai­land gives clearer signs for a rise in its pol­icy rate late this year.

Cur­rently, mar­kets con­tinue to fol­low the sig­nals of ma­jor cen­tral banks, in­clud­ing the Euro­pean Cen­tral Bank and Bank of Ja­pan.

From the start of this year, for­eign in­vestors have been net sell­ers of Thai stocks worth about Bt146 bil­lion. They have also pur­chased Thai bonds worth about Bt146 bil­lion.

Yes­ter­day, the SET closed at 1,709.86, drop­ping 8.48 points from Wednesday, with a to­tal trade value of Bt59.74 bil­lion. For­eign net sales amounted to Bt9.64 bil­lion.

How­ever, there were signs of fewer pur­chases of Thai bonds in May and for­eign cap­i­tal were ex­pected to move out of Thai­land to the United States.

The Fed­eral Open Mar­ket Com­mit­tee (FOMC) unan­i­mously agreed to in­crease its bench­mark rate by 25 ba­sis points to 1.75-2.00 per cent on Wednesday (June 13), as ex­pected by the money mar­kets. It was the sec­ond time af­ter March’s in­crease and the sev­enth since De­cem­ber 2015.

The Fed has also sig­nalled two more in­creases this year, ex­pected to be in Septem­ber and Oc­to­ber.

Siam Com­mer­cial Bank’s Eco­nomic In­tel­li­gence Cen­tre (EIC) said that the two ex­pected round of in­creases could lead to grad­ual rises in long-term US bond yields, given no sig­nif­i­cant change in long-term US in­fla­tion fore­cast.

Based on past de­vel­op­ments, Thai­land’s bond yield was less sen­si­tive to the US yields than those of its re­gional peers, the re­search house (IEC) said.

Some coun­tries with frag­ile econ­omy may see risks in the grad­ual crunch of the global fi­nan­cial sit­u­a­tions, the IEC said.

But in­vestors will se­lect to make in­vest­ment ac­cord­ing eco­nomic strength of the emerg­ing- mar­ket coun­tries, it added.

The re­search house (IEC) said that Thai­land has low risks due to its strong eco­nomic sta­bil­ity com­pared to other na­tions in the re­gion.

The Fed has also re­vised up its fore­cast for this year’s US eco­nomic growth from 2.7 per cent to 2.8 per cent and main­tained its es­ti­mate for next year’s at 2.4 per cent. This year’s es­ti­mated US in­fla­tion is also raised from 1.9 per cent to 2.10 per cent.

The US cen­tral bank projects the short-term in­ter­est rates at 2.38 per cent by the end of this year, up 25 ba­sis points from March’s es­ti­mate.

Bank of Thai­land is ex­pected to main­tain its pol­icy rate at 1.50 per cent this year although the US rates are now higher with wider dif­fer­en­tial, the EIC said.

Based on Thai­land’s man­aged float regime, Thai in­fla­tion re­mains low and its for­eign re­serve is large enough to cope with the ex­pected volatil­ity from cap­i­tal move­ments, while the coun­try’s cur­rent ac­count has been in sur­plus, the re­search house (IEC) said.

Thai­land’s Mone­tary Pol­icy Com­mit­tee is ex­pected to weigh less on the US rate pol­icy, but more on Thai­land’s head­line in­fla­tion and out­put gap for its de­ci­sion to leave the pol­icy rate un­changed, the IEC said.

An elec­tronic sign at KEB Hana Bank shows the bench­mark Korea Com­pos­ite Stock Price Index (KOSPI) trad­ing 0.98 per cent lower dur­ing early trad­ing in Seoul yes­ter­day.

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