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Baht in biggest weekly fall in four months after Fed move

The baht has had its sharpest weekly decline in four months, following the US Federal Reserve's announcement that it would reduce its monetary stimulus programme during the course of next year.

Bank of Thailand spokeswoman Roong Malikamas yesterday said the baht's depreciation was largely in line with its regional peers after the Fed's announcement, but the Thai currency was weakening more than others due to the country's political problems.

"The depreciation in the baht was triggered by the Fed's tapering [of quantitative easing]," Bloomberg quoted Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking in Bangkok, as saying. "In the short term, the baht will remain under a gradual weakening basis. Thailand's political uncertainty will probably make it hard for investors to buy Thai assets."

The baht had fallen 1.8 per cent this week to 32.63 per US dollar as of 3.38pm yesterday in Bangkok, according to Bloomberg - the biggest weekly fall since August 23.

The unit dropped 0.5 per cent and touched 32.65 per dollar earlier in the day, the weakest level since June 2010. It has lost 4.3 per cent so far this quarter.

On Thursday, the baht lost 0.4 per cent, Singapore's dollar weakened 0.2 per cent, Indonesia's rupiah dropped 0.2 per cent and India's rupee fell 0.1 per cent.

Less uncertainties

At their joint meeting yesterday, the central bank's Monetary Policy Committee and Financial Institutions Policy Committee noted that the Fed's decision had reduced uncertainties in the financial market, but volatility would remain.

They were of the view that while financial risks were lower than in previous months - with declines in household debt, property sales and loan extension - economic risks were on the downside, with lower-than-expected private and public spending and limited export recovery.

Moreover, political chaos has dented investor confidence.

Though corporate finances remain in good shape, companies' earnings have tended to drop - particularly among small and medium-sized enterprises - due to economic deterioration.

While saying that the banking sector remained in good health, the two committees consider political instability and capital flow-driven volatility will be the two key factors affecting economic and financial stability.

On Wednesday, the Fed announced it would taper its monthly bond purchases by US$10-billion (Bt326 billion) increments over the next seven meetings, before ending the programme in December next year. The Fed's statement was accompanied by caution this time, unlike the previous ones that caused markets to panic.

Roong said that although given previous adjustments, money markets had not moved with high volatility, there could be market volatility if anything unexpected were to arise.

She conceded that Thailand's political uncertainties may affect capital movement.

Capital is expected to flow out of the Kingdom because of reduction in the US stimulus, Bloomberg quoted Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, as saying in a national television broadcast recently.

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