Thai central bank surprisingly cuts key rate, worried by baht strength

[webfact]

Thai central bank surprisingly cuts key rate, worried by baht strength

By Orathai Sriring and Kitiphong Thaichareon

 

FILE PHOTO: Thailand's central bank logo is seen at the Bank of Thailand in Bangkok, Thailand April 26, 2016. REUTERS/JorgeSilva

 

BANGKOK (Reuters) - Thailand's central bank on Wednesday unexpectedly cut its benchmark rate, expressing worry about strength of the baht and aiming to help support faltering growth.

 

The Bank of Thailand (BOT), which in December hiked the benchmark for the first time since 2011, voted 5-2 to cut one-day repurchase rate <THCBIR=ECI> by 25 basis points to 1.50% - a quarter- point above the record low.

 

Titanun Mallikamas, secretary of the BOT's monetary policy committee, told a news conference a rate cut was to "buy time" as the central bank assessed heightened risks of trade wars and external factors.

 

The committee said it was worried about baht strength.

 

In a Reuters poll, 14 of 15 economists had predicted no rate change on Wednesday while the other forecast a quarter-point cut.

 

The Thai central bank was the third in Asia to cut rates on Wednesday.

 

New Zealand's central bank stunned markets by cutting interest rates a steep 50 basis points and even flagged the risk of going nuclear by taking rates below zero.

 

Then the Reserve Bank of India cut interest rates for a fourth straight meeting in 2019, making a 35 basis point (bp)trim rather than the predicted 25 bps cut.

 

Slow economic growth, below-target inflation and the strong baht <THB=TH> - it is Asia's best performing currency this year - had prompted some calls to erase December's 25 basis point rate hike, Thailand's first increase in more than seven years.

 

In June, the BOT cut its 2019 economic growth forecast to 3.3% from 3.8%, and predicted no export expansion.

 

The MPC said on Wednesday growth was expected to be lower than forecast and below potential.

 

The baht eased after the decision, at was 30.81 per U.S. dollar at 0750 GMT Wednesday. It has gained about 5.6% this year, driven by capital inflows.

 

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said Wednesday's split decision to cut rates "suggests that the baht's great outperformance this year and related headaches to the economy were too great to ignore."

 

"They have used their only policy bullet."

 

(Additional reporting by Satawasin Staporncharnchai; Editing by Richard Borsuk)

 

-- © Copyright Reuters 2019-08-07

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[keith101]

It will need further cuts if Thailand is to get out of its current financial problems and create more exports and bring back tourists , no good for us Aussies the dollar is sinking fast .

[Chivas]

Made absolutely no impression on Dollar/Baht in fact the Baht has in fact mariginally gained strength since that release against the USD

[Roy Baht]

This has nothing to do with the weakness of western currencies. The Chinese weakened their yuan yesterday. The Thais cut their key rate today.

[bbbbooboo]

Hmmm.... I guess at the end of the day tourists will go where their money has most value. At the moment it’s not Thailand and with the Thai’s homophobic immigration attitudes tourists and falang are looking elsewhere. Som nom na?

[soistalker]

Did the guys at the Bank of Thailand get their degrees from Somchai on Ko San Road? Someone should check.

[soistalker]

1 minute ago, bbbbooboo said:

Thai’s homophobic immigration attitudes tourists...

You're going to need to clarify what this means.

[blazes]

 

Everyone's racing to the bottom.  (Is that what was meant by "homophobic" above??)

[soalbundy]

15 hours ago, Chivas said:

Made absolutely no impression on Dollar/Baht in fact the Baht has in fact mariginally gained strength since that release against the USD

Likewise Euro and pound

[soalbundy]

7 minutes ago, bbbbooboo said:

Hmmm.... I guess at the end of the day tourists will go where their money has most value. At the moment it’s not Thailand and with the Thai’s homophobic immigration attitudes tourists and falang are looking elsewhere. Som nom na?

? ? ? ?

[marcusarelus]

9 minutes ago, soistalker said:

Did the guys at the Bank of Thailand get their degrees from Somchai on Ko San Road? Someone should check.

https://www.investopedia.com › ... › Forex Trading Strategy & Education

Jul 13, 2019 - Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country's currency.Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

[Runamile]

The rate cut in itself is not significant but final admission that the Baht rate is too high may possibly represent minds concentrating and concentrating on a range of measures. So potentially good news, but as only a marker, way too late for many collapsing businesses and, of course, the many that have already gone under.

[Tayaout]

24 minutes ago, bbbbooboo said:

Hmmm.... I guess at the end of the day tourists will go where their money has most value. At the moment it’s not Thailand and with the Thai’s homophobic immigration attitudes tourists and falang are looking elsewhere. Som nom na?

In the land of the ladyboys, I don't think immigration care about your sexual orientation. 

[hobobo]

17 hours ago, webfact said:

a quarter- point above the record low.

Make that a quarter-point BELOW the record low and you mage get a handful of farang tourists back, and you may even export Yingluck's rotten rice to some hungry nation.

[Berkshire]

21 minutes ago, marcusarelus said:

https://www.investopedia.com › ... › Forex Trading Strategy & Education

Jul 13, 2019 - Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country's currency.Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

Exactly.  Lowering interest rates will hopefully discourage foreign money coming in, which should result in the weakening of the baht over time.  I'm constantly amazed that so many expats buy into the nonsense that the Thais are "manipulating" the THB to make it stronger.  It makes no sense....if one understands anything about international finance and basic economics. 

[soistalker]

37 minutes ago, marcusarelus said:

https://www.investopedia.com › ... › Forex Trading Strategy & Education

Jul 13, 2019 - Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country's currency.Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

Thanks. I was in finance. But what you fail to realise is that foreign investors are running away from Thailand faster than an Australian when it's his turn to buy a round. Foreign investment sentiment is Thailand is terrible. You cant force out all foreign investors; they will not come back.  Plus, the xenophobia and lack of recourse to justice for criminal actions adds to this.

[soistalker]

8 minutes ago, Berkshire said:

 It makes no sense....if one understands anything about international finance and basic economics. 

And it is Thais who understand these two things?

Uhmmm...no.

[Isaan sailor]

Fact: Thai Baht fastest growing currency in Asia.

Fact: Thailand holds record USD reserves.

Fact: China holds Trillions of USD debt in short term bonds.

Fact: Thai regime has signed multiple bi-lateral trade deals with ChiComs

Fact: Gen. Prayat claims Thailand 4.0 fits perfectly with ChiComs BRI.

Conjecture: ChiComs made deal to dump their maturing USD bonds into Thai bonds (aka hot money inflows).  This ongoing deal began several years ago.  Now we have high Baht, damaged exports and precarious tourism. China gets safe investments to help fund BRI.

[Srikcir]

18 hours ago, webfact said:

New Zealand's central bank stunned markets by cutting interest rates a steep 50 basis points and even flagged the risk of going nuclear by taking rates below zero.

Will Trump label New Zealand as a currency manipulator?

A much more aggressive action perhaps in the long term than China's recent yuan devaluation.

[4MyEgo]

More like cut the rate in fear that a world recession is on the way ?

[Guderian]

Welcome, Thailand, to the Race To The Bottom!

The UK is currently a length ahead, followed by the EU and Australia running neck-to-neck, with the USA bringing up the rear of the pack. 

[Srikcir]

21 minutes ago, soistalker said:

Foreign investment sentiment is Thailand is terrible.

On the other hand Japan's investments in Thailand has almost become fanatical.

• May 2019-Japanese investment projects in the EEC include the High-Speed Rail Linking 3 Airports Project and human resource development. https://thailand.prd.go.th/1700/ewt/thailand/ewt_news.php?nid=7978&filename=index

Perhaps Japan sees an investment opening (and closer ties to Thailand gpovernment) if China begins to slow its investment due to yuan devaluation and Thai imports (apart from agriclure).

[newnative]

16 hours ago, Chivas said:

Made absolutely no impression on Dollar/Baht in fact the Baht has in fact mariginally gained strength since that release against the USD

Correct.  I transferred money last week using Transferwise and got 30.81 baht to the US dollar. Checked today and the rate is 30.76.

[PingRoundTheWorld]

5 minutes ago, Srikcir said:

On the other hand Japan's investments in Thailand has almost become fanatical.

• May 2019-Japanese investment projects in the EEC include the High-Speed Rail Linking 3 Airports Project and human resource development. https://thailand.prd.go.th/1700/ewt/thailand/ewt_news.php?nid=7978&filename=index

Perhaps Japan sees an investment opening (and closer ties to Thailand gpovernment) if China begins to slow its investment due to yuan devaluation and Thai imports (apart from agriclure).

This probably has a lot more to do with the Japanese losing trust in Japan as an investment destination due to lack of growth/returns. Japanese investors have been eager for more risk (and more returns) in recent years, not just in Thailand but in many "risky" markets.

 

As for the BOT cutting rates - good! About time they acknowledged they have a problem and started doing something about it. High baht is good for maybe 1% of Thais and bad for everybody else.

[john69]

1 hour ago, soistalker said:

You're going to need to clarify what this means.

He means xenophobic, but probably doesn't know the word...

[Sandy Freckle]

41 minutes ago, soistalker said:

faster than an Australian when it's his turn to buy a round.

..., but presumably not as slow as the current English test cricketers. 

[peter48]

I guess there is an issue about China making its currency more competitive as well as suffering falling trade, falling economic growth which spurs countries like Thailand to respond both because falling Chinese demand will affect Thailand and other competitive weaker currencies ( like Vietnam) will encourage businesses to look elsewhere. Vietnam economic growth has been impressive. 

[cedel]

1 hour ago, bbbbooboo said:

Hmmm.... I guess at the end of the day tourists will go where their money has most value. At the moment it’s not Thailand and with the Thai’s homophobic immigration attitudes tourists and falang are looking elsewhere. Som nom na?

You meant probably "XENOPHOBIC"... 

[bristolgeoff]

Realising that a problem will come soon.if the baht remains strong

[PingRoundTheWorld]

5 minutes ago, bristolgeoff said:

Realising that a problem will come soon.if the baht remains strong

Come soon? It's already here. Both exports and tourism are significantly down and will just get worse if the baht stays strong.