Perfect Storm

Thailand is caught in a perfect storm, with domestic political chaos and the global credit crunch combining to send the Thai stock market down more than 6 per cent to close below the 500-point barrier.

At the same time, the US Federal Reserve also slashed its key interest rate 50 basis points to 1.5 per cent, in order to prop up its ailing financial sector. Other central banks around the world have followed suit with their own monetary easing.

Thai shares yesterday plunged at the opening bell and fell further to the day's trough of 483.91 points, or a loss of more than 8 per cent, before recovering slightly to end the day at 491.34 points, a 6.88-per-cent slump from Tuesday's close.

The Thai stock market has sunk 42 per cent so far this year, with foreign investors heading for the exits, as reflected by their net selling of more than Bt130 billion.

Syrus Securities strategist Chakkrit Charoenmethachai said mounting anxiety over the global financial crisis outweighed that over the local political unrest.

However, he recommended investors avoid snapping up Thai shares, due to further downside risks.

State-owned Krung Thai Bank (KTB) has stopped extending working-capital loans to high-risk corporations amid the global credit squeeze, KTB president Apisak Tantivorawong said yesterday.

That is why he estimated his bank's net loans in this quarter would drop from the previous quarter.

The bank did not tighten lending following the US financial meltdown, but fewer customers qualified for loans, he added.

And there is more bad news on the international front.

The Fed, acting in coordination with other global central banking authorities, cut its key rate from 2 per cent to 1.5 per cent.

Chairman Ben Bernanke and his colleagues revived the central bank's rate-cutting campaign, which was halted in June out of concern that those low rates would worsen inflation.

        But since then, economic and financial conditions have deteriorated dangerously,  forcing the Fed to reverse course.

In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by a half-point to 4.5 per cent, while the European Central Bank sliced its rate to 3.75 per cent.

China also cut its key interest rates yesterday for the second time in less than a month, in order to stimulate slowing economic growth amid the global credit crisis.

Frantically trying to stop the bleeding on Wall Street, the Fed took a first-time step on Tuesday to get cash directly to businesses and hinted that interest rates could come down soon. Stocks continued their free fall anyway and hit new five-year lows.