Central bank intervenes in foreign exchange

[gjbkk]

Business News

Thailand's central bank intervenes in foreign exchange market



Jun 9, 2008, 8:36 GMT

Bangkok - Thailand's central bank on Monday intervened in the foreign exchange market to halt a rapid slide of the baht currency, officials said.

Suchada Gillakul, assistant to the Bank of Thailand's governor, said the intervention was deemed necessary after the baht dropped to 33.41 to the dollar Monday morning, its lowest rate in five months. It had closed Friday at 32.96.
'We will investigate whether foreign investors are speculating on the baht,' she told reporters.

After the intervention, the baht traded at 33.22 to the dollar Monday afternoon.
Like most Asian currencies, the Thai baht has steadily appreciated against the dollar, gaining almost 20 per cent over the past two years before starting to weaken last month in the wake of rising inflation, growing political instability, declines on the stock market and slowing growth projections.
By midday Monday, the Stock Exchange of Thailand index had fallen 1.3 per cent largely in response to a dramatic fall on Wall Street Friday.

[barbaro]

Thanks for the article, gjbkk.

So....any predictions? If any, on the Baht?

[gjbkk]

Here is the reason


Asian Stocks Tumble on U.S. Jobs Report, Crude Oil's Advance

By Chen Shiyin and Chan Tien Hin



June 9 (Bloomberg) -- Asian stocks dropped, led by automakers and technology companies, on concern surging oil prices and slowing U.S. growth will derail earnings.
Toyota Motor Corp., Japan's largest automaker, and Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, fell after U.S. unemployment rose the most in 22 years. Korean Air Lines Co. plunged the most in three months after Goldman, Sachs & Co. cut its share-price forecast and crude jumped more than $10 a barrel on June 6. India's Sensitive Index tumbled 3.1 percent, the most since April.
``We're being attacked from all fronts,'' said Jason Lee, who helps oversee the equivalent of $2.1 billion as general manager of equities at Amanah Raya-JMF Asset Management in Kuala Lumpur. ``We're heading for tough times; expect to see more earnings revisions.''
The MSCI Asia Pacific Index lost 1.6 percent to 147.91 as of 2:40 p.m. in Tokyo, with about nine stocks retreating for each that climbed. All 10 industry groups and every Asian market dropped, apart from Hong Kong, China, Australia and the Philippines, which are closed today for holidays.
Japan's Nikkei 225 Stock Average declined 2.1 percent to 14,181.38, after ending last week at the highest since Jan. 9.
U.S. stocks tumbled on June 6, sparking the Dow Jones Industrial Average's worst sell-off in 15 months, after the Labor Department said the jobless rate grew to 5.5 percent in May from 5 percent in April, the biggest increase since 1986. Standard & Poor's 500 Index futures expiring in June climbed 0.5 percent.
Toyota, Sony
Toyota, which gets about half of its profit from North America, dropped 2.9 percent to 5,430 yen. Sony Corp., the world's second-largest maker of consumer electronics, fell 3.7 percent to 5,280 yen. Samsung lost 3.2 percent to 686,000 won.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.
MSCI's Asian index has dropped 6.2 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.
``If the U.S. goes, Asia and the rest of the world will also go,'' said Leslie Phang, who helps oversee about $260 billion as Singapore-based head of investment at Schroders Plc's private- clients unit. ``We've now shifted from the scenario of slowdown driven by the credit crunch to that of stagflation because of high oil prices.''
Hon Hai Precision Industry Co., which makes iPods for Apple Inc. and computers for Dell Inc., slumped 3 percent to NT$175.5. Nintendo Co., maker of the Wii game console, slipped 1.5 percent to 57,400 yen.
Oil's Rally
The unemployment report sent the dollar lower, triggering demand among investors for commodities. Crude oil for July delivery rose 8.4 percent on June 6 to $138.54 a barrel in New York, the biggest-ever gain in dollar terms and the largest percentage increase since mid-June 1996. Futures reached a record high of $139.12 during the session.
Record oil prices sent South Korea's consumer confidence lower to 92.2 in May from 100.4 in April, according to the National Statistical Office. That's the weakest in more than three years. Oil prices topping $130 a barrel may slow global economic growth, Japan's Trade Minister Akira Amari said yesterday.
Korean Air, South Korea's largest airline, dropped 4.8 percent to 51,400 won, its biggest drop since May 22. Goldman Sachs cut its share-price estimate by 22 percent to 45,800 won in a report on June 6, saying airline stocks will lag behind other equities because of soaring fuel costs and a decline in traffic.
Flights Cancelled
China Airlines, Taiwan's largest carrier, dropped 6 percent to NT$14.80 after spokesman Bruce Chen said the company will cancel 100 passenger flights and 50 cargo services a month, or about 10 percent of its capacity, as jet-fuel prices surge.
EVA Airways Corp. will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said. The stock fell 5 percent to NT$16.25 in Taipei.
Bharat Petroleum Corp., India's second-biggest state refiner, slumped 7.3 percent to 279 rupees on concern that increased fuel prices won't be able to offset losses. The government raised fuel prices on June 4 and reduced taxes to narrow more than $50 billion of revenue losses at refiners.
Indian Oil Corp., the largest, lost 4.3 percent to 361.9 rupees.
Via Technologies Inc., Taiwan's largest designer of computer processors, gained 6.8 percent to NT$21.95, the second-biggest advance on MSCI's Asian index. Via said it will cooperate with Nvidia Corp., the world's second-largest maker of graphics- processors, to develop chips for small-sized desktop computers and mini-notebooks.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37[at]bloomberg.net; Chan Tien Hin in Kuala Lumpur thchan[at]bloomberg.net.
Last Updated: June 9, 2008 05:04 EDT

[ray23]

Inflation is really taking a huge bite these days driven by oil and food. Predictions hard to say with the government stepping into the market

Whats really unusual dollar down and Baht down at the same time.

Does anyone have a clue what Thailands national debt is now compared to two years ago?

I wasn't really surprised by this baht was dropping like a rock.

By the way the nets said the baht was 33.30 today when i went to the atm I got 33.02 in the past I have gotten more not less.

I'm sure this will be l blamed on politics, I don't think so. Intersting that they are looking for speculators, that waht caused the big change a while back 30% rule. But, this time we are looking cause they are pulling the money. That being said the money short trem is in commodities and that is what speculators do Shouldnt be any big surprises there.

[Gerbil]

35 to the dollar would be nice (for me).

[Norton]

I still believe by year end will be 36-37 per USD.

[ray23]

Interesting April Home Sales in the US went up 6.9%

Dollar went up again 106.29 to the yen

On Bloomberg T.V. about 45 Mins ago.

So what will be the efffect of setting the controls again, wouldn't think it would help to get foreign investors. Really a complete turn around, It wasn't that long ago they removed the 30% rule to get investors and here we go again, got to be a real confidence builder.

Another forum talked about all the cash reserves Thailand has. I remember they used some gains to pay off the World Bank loan. So if they have all those dollar reserves that were used to support the dollar wouldn't think they would care. They would make money either way.

So do they really have the cash reserves?

[Spin]

Interesting April Home Sales in the US went up 6.9%

These are pending sales and not closings, the numbers for closings come out on June 26th and are a better reflection of the situation.

Interestingly, the average rate on a 30-year fixed mortgage increased to 6.09 percent last week, the highest since the week ended March 20.
Base rates are what? 2.5%??

[Thormaturge]

So do they really have the cash reserves?

Thailand has been amassing foreign currency in the past year, largely on the back of increasing prices for rice exports, and is sitting pretty if the dollar appreciates.

Any intervention by the central bank will probably be aimed to prevent a slide against world currencies in general, and if the Dollar appreciates globally then the bank may well just sit back and rub its hands.

[Whiteshiva]

Bangkok - Thailand's central bank on Monday intervened in the foreign exchange market to halt a rapid slide of the baht currency, officials said.

Could this be the beginning of the end of the strong baht? I certainly hope so.....

There are a few parallels to 1997, for sure - the central bank buying baht, for one......

[gjbkk]

BoT detects baht speculation

Foreign deals pushing down currency's value

PARISTA YUTHAMANOP & SOMRUEDI BANCHONGDUANG

The Bank of Thailand warned yesterday that foreign speculative transactions were pushing down the value of the baht.


Suchada Kirakul, a central bank assistant governor, said regulators were closely monitoring transactions in the foreign exchange market.


The baht traded yesterday at a five-month low of 33.21 to the dollar, down from 33.10 on Friday. Dealers said the baht, which opened at 33.16, fell as low as 33.40 before central bank intervention helped the currency rebound.


The baht has come under pressure in recent weeks as investors have fled local equities and bond markets due to declining confidence in the country's political situation, Mrs Suchada said.


Bond yields, meanwhile, have risen in recent weeks in anticipation that the Bank of Thailand will soon move to push up its benchmark one-day repurchase rate, now at 3.25%, to help curb rising inflationary pressure.


Soaring oil prices have pushed the current account into a deficit, leading some analysts to project further baht weakness over the second half of the year.

''It is normal for equities investors to sell baht for dollars to move their funds out.

But the central bank has seen some baht borrowings by foreign investors to buy dollars,'' Mrs Suchada said. ''We suspect that such transactions are being made for speculative purposes. Thai economic fundamentals have not changed that much within one day.''


Pressure on the baht has also increased because of greater demand from importers on fears of further currency weakness. Exporters have also delayed the sale of foreign currency earnings in hopes that the baht will continue to decline.

A weaker baht increases the cost of imports and increases inflationary pressure, but benefits exporters in local currency terms.


''Importers should not panic, and exporters should not wait for the baht to get weaker. The baht at current levels does not reflect economic fundamentals,'' Mrs Suchada said.


The central bank expects the current account to remain in positive territory in 2008, although imports have increased in value terms as global market prices for commodities such as oil, gold and steel have increased. The current account recorded a deficit of $1.7 billion in April, the highest in two years.


Currency dealers said rising oil prices would put further pressure on the currency in the months ahead.


Tak Bunnag, an executive vice-president of Bank of Ayudhya, said rising fuel prices would raise business operating costs worldwide and have an impact on capital flows. Fears of declining economic growth had prompted heavy sales of baht by importers, he said.


Mr Tak said higher oil prices would further put pressure on the baht to weaken, and that the unit could reach 33.40 by the end of the week.


Expectations that interest rates will rise and monetary policy will tighten to help curb inflation are growing in the market.


Kobsidthi Silpachai, head of capital markets research at Kasikornbank, noted that core inflation, which excludes food and energy prices, had reached 2.8% last month and had moved steadily closer to the central bank's upper target of 3.5%.

Central bank intervention in the currency market was expected to continue this week, as regulators would fight to keep the baht from moving lower than 33.50 to the dollar, he said.


''Our importer customers have continually sold the baht since last week, and trading activity has been quite active,'' Mr Kobsidthi said.




I wonder if there will be a crash soon

[Butterfly]

well, it feels like the party is over, we are heading into a major global recession, sell everything you can while it's still expensive

[bkkandrew]

BoT detects baht speculation

Foreign deals pushing down currency's value

Regular Sherlock Holmes lot at the BoT...

Suchada Kirakul, a central bank assistant governor, said regulators were closely monitoring transactions in the foreign exchange market.

Suchada Kirakul would have difficuly in avoiding insolvecy if placed in charge of a whelk stall for a day...

Illustrated by comments such as this:

''Importers should not panic, and exporters should not wait for the baht to get weaker. The baht at current levels does not reflect economic fundamentals,''

As it was she that was aying the exact opposite when 'tackling' the Baht's rise some months ago.

[Thormaturge]

Bond yields, meanwhile, have risen in recent weeks in anticipation that the Bank of Thailand will soon move to push up its benchmark one-day repurchase rate, now at 3.25%, to help curb rising inflationary pressure.

Here's the culprit.

Lending money at less than the inflation rate means an effective loss on any money that is lent. Increasing pressure on inflation means an even bigger loss so it is either higher interest rates or a weaker Baht.

[bkkandrew]

^Which was why the main banks all increased rates last week:

Since Monday, Bangkok Bank, Siam Commercial Bank, Kasikornbank and Krung Thai Bank have all increased their prime lending and fixed-deposit account interest rates. Market leader Bangkok Bank currently quotes minimum lending rates of 7.25%, up 0.375 points from last week.

Source: Bangkok Bank

[thehighlander959]

So the big question for me is? Do I continue to pay my Euro salary into my Thai Bank account or shift the money to my offshore account in the UK,this is what I call a dilemma.. Any ideas guys?

[deathstardan]

Whatever happens... it's the farangs what done it!

[bkkandrew]

So the big question for me is? Do I continue to pay my Euro salary into my Thai Bank account or shift the money to my offshore account in the UK,this is what I call a dilemma.. Any ideas guys?

Depends where you are going to spend the money really...

[thehighlander959]

Excellent observation Andrew.. This will be retirement money for LOS , a house or condo not sure yet,car, and enough money in the bank to ensure I can stay in Thailand with as little hassle as possible. My pension goes to the offshore account so this is hedging my bets a little,being a bad boy scout I say be prepared.

[bkkandrew]

^Well, in that case, I would hold in Euros for now, with the downside on THB now clear for all to see. Set a target conversion rate of, say, 62 and a stop-loss >2years of 50. Then pay 10% of your gain to me...

Only downside on the Euro is if some countries withdraw, due to current chaos. Spain is a possible, but less than 20% chance IMHO. If it were to occur, convert immediately. Also consider early/partial conversion if Eire rejects the Constitutional Treaty...

[Butterfly]

^ The euro should eventually re-adjust lower, as shitholes Eastern Europe countries with a 10% official inflation start joining next year,

Lithuania is one of them,

[thehighlander959]

Thanks Andrew I will keep that in mind, I have a kinda plan coming together in my head its a long similar lines to what you have said, but I was going to split the salary between the offshore account and the Thai Bank.
The issue with Spain and Eire will change things for me considerably as that is like a vote of no confidence in the currency. I will have to wait and see.

[Fabian]

^ The euro should eventually re-adjust lower, as shitholes Eastern Europe countries with a 10% official inflation start joining next year,

Lithuania is one of them,

How can they join with 10% inflation?

[Fabian]

If core inflation in Thailand is already 2.8% I wonder how much overall inflation is?

[Thormaturge]

^
I would be surprised if the true inflation rate here were less than 10% at present. Just in the past six months I have seen just about everything rise in price from ordinary restaurant prices such as Sizzler, road tolls, petrol (almost daily), bus fares, and most of all Thais are complaining at the price of rice which I understand has doubled. A 25 - 50% price hike in something no longer surprises me.