Gaybutton Posted March 24, 2007 Share Posted March 24, 2007 I wish I understood more about the way economics work, but this move seems to me part of Thailand's bid to stem the strengthening of the baht and if it works, may even be the beginning of a reversal of the trend. I certainly would have no objection if the exchange rate finally starts moving in our favor again. The following appears in THE NATION: _____ FOREIGN EXCHANGE BOT Urges Dealers to Buy Dollars Baht Weakens Amid Volatile Trading The central bank urged dealers at banks to "adjust" their foreign-exchange positions, resulting in banks buying up US dollars and causing the baht to weaken against the greenback in afternoon trade yesterday, falling to 35.05 against the greenback from Thursday's close of 34.63/34.67. A financial source said the volatility was caused by urgent letters circulated by the Thai Bankers' Association (TBA) calling on banks to "adjust the position" of their foreign-exchange portfolios, which was seen as a requirement from the central bank. This spurred banks' demand for dollars amid strong dollar sales from exporters. But the information was quite confusing and resulted in volatile trading, the financial source said. The baht bounced between 34.70 and 35.05 to the dollar before closing at 34.96/35.03. Bank of Thailand (BOT) Governor Tarisa Watanagase said she met with TBA chairman Apisak Tantivorawong to discuss the baht but added that she did not know why there was demand from banks to buy dollars yesterday. Tarisa said several rumours were circulating. Prime Minister Surayud Chulanont yesterday said he was worried about the baht's recent appreciation against the dollar and that his government was planning to take measures to help exporters. The dollar hit a fresh nine-and-a-half-year high of 34.65 against the US currency early yesterday, as exporters sold dollars on fears the baht would strengthen more. "The Bank of Thailand and the Ministry of Finance are closely monitoring the situation ... we are looking to introduce measures to ease the impact on exporters," Surayud told reporters after meeting with ministers, including Deputy Prime Minister Kosit Panpiemras and Finance Minister Chalongphob Sussangkarn. Surayud did not say what those measures could be. Kosit said he would meet with the Federation of Thai Industries next week to discuss the impact of a firmer baht on export competitiveness and how the government could help exporters cope with the situation. Chalongphob said the baht could weaken again if the market considered it had strengthened to a point that was above its fundamental level. Board of Trade chairman Pramon Sutivong said a cut to the BOT's policy interest rate would help rein in the appreciation of the baht, helping it move in line with regional currencies. The lower rates would also boost investors' confidence and bring back investment. He declined to comment on the size of the rate cut required, saying that was up to the Monetary Policy Committee (MPC). Market players are divided on how large a rate cut is necessary. Some propose that the MPC make a sharp cut of 1 per cent at its next meeting, which would have a major impact, while others recommend two 50-basis-point cuts over the next two meetings. JP Morgan, which on Thursday upgraded the Thai stock market from "neutral" to "overweight", yesterday projected the Stock Exchange of Thailand (SET) Composite Index would rise to 770 points this year. Adrian Mowat, the investment bank's chief strategist for Asian and emerging markets, forecast that earnings per share would rise from 4.3 per cent this year, the lowest of all emerging markets, to 11-12 per cent next year. "Currently, the price-to-earning (P/E) ratio is 9.6. At 770, the P/E ratio will be 10.5. The market is cheap. The valuation is very inexpensive. We look ahead over 12 months and want investors to think differently about what's going on now in the Thai market," Mowat said. However, despite an upgrade by the US-based investment bank, the market did not rise as much as many expected yesterday. The SET closed at 677.79, climbing 0.44 per cent from Thursday in thin trade. Just Bt8.45 billion worth of shares changed hands. Meanwhile, Democrat Party deputy secretary-general Korn Chatikavanij said cutting interest rates would not help domestic consumption. "Cutting the rate is not enough. The government must implement measures to help people. The government must create jobs and confidence through its budget," Korn said. Anoma Srisukkasem Piyarat Setthasiriphaiboon The Nation Dow Jones Newswires Quote Link to comment Share on other sites More sharing options...
Guest Hedda Posted March 24, 2007 Share Posted March 24, 2007 Thailand's single biggest problem is that it is an export-driven economy in an international market where Thai good are increasingly uncompetitive, and it's not just the exchange rates that are doing that. Cutting interest rates normally helps revive an economy, but only when there's a substantial consumer segment to drive the recovery by spending and borrowing. The rural poor don't do either, regardless of rates. Thailand has simply not developed a consumer-based economy that can be the engine for recovery and growth. What's potentially dangerous about these drastic interest rate cuts is that it may encourage all sort of folks with dubious credit histories to borrow cheap money to go rushing into the real estate business, creating an even greater glut of inventory than exists now . . . until the bubble bursts. If the Thai banks get sloppy again with their lending practices, it could be a "play it again, Sam" repeat of 1997, which you will remember also started with a run on the baht - in the other direction. All that cheap money sloshing around in real estate projects could also have a serious inflationary effect on prices in the domestic economy. If oil prices spike again due to some international crisis, that could be the trigger to send inflation spiraling out of control in the Thai economy. Quote Link to comment Share on other sites More sharing options...
Guest GaySacGuy Posted March 25, 2007 Share Posted March 25, 2007 It is not working very well in Phuket...the exchange rate on Sunday afternoon is 34.44 Quote Link to comment Share on other sites More sharing options...
Gaybutton Posted March 25, 2007 Author Share Posted March 25, 2007 It is not working very well in Phuket...the exchange rate on Sunday afternoon is 34.44 The whole thing reminds me of Ronald Reagan's logic when he said, "It is a tax reduction because we are reducing the amount of the increase." Quote Link to comment Share on other sites More sharing options...
