Baht weakens on rate cut
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The surprise rate cut in Thailand has led to a boost in the stock market as well as further weakness in Thai baht against US dollar.
Initially, the baht weakened by about 0.5 per cent versus US dollar. At 6.59pm, the Thai currency stood at 32.9 per dollar, against 32.7 yesterday.
In a research note, Dominic Bunning, senior FX strategist at HSBC, implied that the central bank is caught in a dilemma. While the policy rate is eased to boost the economy, this action could fuel outflow pressures which will further weaken the currency particularly when the dollar stands to gain against all currencies.
There are growing risks that policy makers will struggle to ease while also curbing significant outflow pressures, he said.
"Although we think a cut in Thailand is justified, there is a risk that investors start to become more concerned about policymaking flexibility, in terms of controlling local currency weakness. This is something we have seen Indonesia in recent weeks," he added.
Meanwhile, local investors welcomed the rate cut.
The SET index opened today at 1,525.00 points, 6.04 points lower from yesterday's closing. It swung to the positive territory in the afternoon as the central bank cut the policy rate to 1.75 per cent, to boost the economy.
The index ended the day at 1,543.84 points, up by 12.80 points or 0.84 per cent, on turnover of Bt53.8 billion.
During March 1-10, foreign investors had been net-buyers of Thai shares, with net-buy position of Bt4.6 billion.
Yet, the trend was reversed today with net-sell position of Bt1.8 billion.
