No intervention by central bank as baht weakens following military's move

Economy May 21, 2014 00:00

By Erich Parpart
Sucheera Pinijp

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The Bank of Thailand will not intervene in the market despite the baht's fluctuation following the declaration of martial law yesterday.

Spokeswoman Roong Mallikamas said the country’s banks and the financial markets were operating normally, although there had been some panic in the currency and stock markets in the morning due to the military’s move.

"Some investors may have been panicked at the start of the market on May 20, but after the situation was assessed and the news digested, their concerns lessened," she said.

The baht dropped the most in two months as the army imposed martial law nationwide. It weakened as much as 0.6 per cent yesterday, the biggest intra-day loss since March 20, before trading 0.3 per cent lower on the day at 32.56 per dollar as of 8.45am in Bangkok, according to data compiled by Bloomberg.

Roong said reduced concern among investors over the political crisis was expected to result in a rapid correction in the currency and bond markets, while the overall impact of martial law on the economy remained to be seen.

Meanwhile, the central bank’s Monetary Policy Committee (MPC) said the declaration of martial law would only have an impact on the economy in the short term, and it urged the military to provide clarification for foreigners so that they had a better understanding of the situation.

The MPC said current monetary policy was adequate for the economic situation, and that it would not intervene in any way since the policy interest rate was still able to simulate the economy.

Political instability is still playing the main role as the true adversary of the economy, the panel added.

MPC member Siri Karncharoendee said the declaration of martial law should bring about some positive changes in the political situation, provided it could put an end to protests from all sides.

"I truly hope martial law can rapidly bring back the rule of law and peace to the country. In the beginning, foreign investors might look at us in a negative way, but this will only be short term because if we can provide some understanding and the need for the law, we can really benefit from it greatly since the country and economy can finally move forward," he said.

Amonthep Chawla, head of CIMB Thai Bank’s research office, said that while it was too early to predict the outcome for the economy, there should be a short-term impact in terms of foreign tourists’ confidence.

The depreciation trend of the baht is expected to rebound shortly, in line with the region, although the unit’s movement is affected more by external factors, he said.

The Stock Exchange of Thailand (SET) also experienced some fluctuation yesterday, with the main index falling 22 points in morning trading, before recovering to a drop of 15.94 points and closing on 1,394.69 points. Trading value was Bt43.25 billion.

Foreign investors recorded net sales worth Bt8.33 billion.

Brokerages KT-Zmico Securities and Globlex Securities commented that the SET fall was only a short-term phenomenon, since there was hope of some clarity in the political situation in the next two weeks.

They believe the falling index was largely due to concerns among some foreign investors, who downsized their investment portfolio in the belief that they could not invest in a country under martial law.

TRIS Rating said martial law would have a short-term negative impact on Thai corporate ratings, since most rating companies view it as having a negative impact on confidence.

However, it does not mean they will lower the country’s rating right away, it said.

"If you read Moody’s report, it did not say whether they would lower the country’s rating due to the political situation, but they are trying to say that the political situation will affect the confidence level.

"If we look at the balanced budget target, not only Moody but S&P and other rating institutions also consider rating based on such a target and, when there is a situation such as this, these institutions will see it as negative – and they might consider it as a potentially negative factor more than lowering the country’s rating right away," said Santi Kiranand, president of TRIS Rating.

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