Baht dips in line with regional peers
US Fed cuts stimulus as expected; short-term Thai bonds may be hit
The Bank of Thailand said yesterday that the baht fell, following its regional peers, after the US Federal Reserve pressed on with monetary-stimulus cuts that have spurred investment to shift from stock markets to low-risk assets. The Thai currency fell to Bt32.96 against the dollar at the close yesterday.
The Thai Bond Market Association said the United States’ tapering of bond purchases might cause investment in short-term bonds to move out.
The Fed’s scaling back of its bond purchases came as most markets expected, the central bank and the ThaiBMA said.
The Fed said it would trim its monthly bond buying to US$65 billion (Bt2.14 trillion) from $75 billion, sticking to its plan for a gradual withdrawal from departing chairman Ben Bernanke’s unprecedented quantitative-easing (QE) policy.
After the Fed announcement, global markets followed the previous direction, with investment moving out of risky assets such as stocks and emerging-market assets and flowing into low-risk assets.
Safe-haven currencies rose yesterday, while emerging-market currencies were highly sensitive, the BOT said. The baht depreciated slightly from the day before, the central bank said, adding that the move was in line with its regional peers.
As the global economy is now more sensitive than the normal situation, while Thailand is close to an election, some reduction of foreign-investor positions could be seen, the central bank said, while expecting no panic sales, given the Kingdom’s sound economic fundamentals.
Thailand also follows macroeconomic policy with a focus on maintaining a balance, the BOT said. Foreign investors focus on economic fundamentals and emerging-market countries that can maintain a balance, and have sound macroeconomic policies will not stay very sensitive.
Suchart Thanathitiphan, deputy director of the ThaiBMA, said there was no certain direction for capital movement, partly because investors were waiting to see the US direction and how the Thai political situation develops.
Markets expect the Fed gradually to cut back its bond purchases throughout the year before ending the QE programme this year. That may spur foreign capital of about Bt100 billion, most of which could be in short-term bonds, to flow out of the Thai bond market, Suchart said. Long-term bond investors, however, may not sell off, he said.
“Early this year, foreign capital remained stable with no certain direction for outflows or inflows, partly because of the wait-and-see attitude for US QE tapering and the Thai political situation.
“Although the US will scale back and end its QE, other developed countries, like Japan and those in Europe, continue injecting liquidity into their systems and Thailand may see capital flowing in from other regions. However, the amount may not be large as it was for [the Fed’s] QE,” he said.
From January 1 to 24, about Bt10 billion worth of capital moved out of the Thai bond market, Suchart said. Most of it came from Bt80-billion bonds that matured and Bt2-billion net sales. Of total net sales, long-term bonds totalled Bt17 billion and bond purchases amounted to Bt15 billion.
This was seen as portfolio corrections from long-term to short-term bonds to mitigate risks from long-term bonds’ yields that could follow long-term US bonds’ yields, he said. Foreign investors’ net holding of bonds totalled Bt697.5 billion. Of that, short-term bonds accounted for 13 per cent and long-term bonds 87 per cent.
Previously, short-term bond yields declined as markets expected the BOT to cut its policy interest rate. Markets expected the rate to be slashed this quarter. Long-term bond yields rose only 2-3 basis points.
Amonthep Chawla, vice president and head of economic and financial-market research at CIMB Thai Bank, said that even though Thailand was well placed in terms of the ratio of short-term external debt to reserves and the current account, the worrisome issue at this time was the country’s international reserves showing a drop compared with the year before.
Asian markets slumped yesterday, extending a global rout on renewed fears about emerging economies after the Fed pressed ahead with its stimulus reduction and Turkey and South Africa raised interest rates.
The SET Index closed down 7.35 points to 1,264.07 on turnover of Bt21.08 billion.
Tokyo dived 2.45 per cent to close at 15,007.06, leading other markets lower.
