Wednesday, December 7

Thai baht extends losses after rate hike; recession woes hurt Asia FX


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Thailand’s baht extended losses on

Wednesday after the country’s central bank hiked interest rates

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by 25 basis points (bps) in a widely anticipated move, while

other currencies in the region also weakened against the US

dollar.

The Bank of Thailand (BOT), which has lagged its regional

peers in the scale of monetary tightening, raised its key rate

for a second straight meeting, in a bid to tame inflation and

ensure a continued economic recovery.

The baht shed 0.9%, while equities in Bangkok

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dropped 0.5% after the decision. The baht, which has

lost about 12.8% so far this year, lingered at its lowest level

in more than 16 years.

The central bank’s decision was in line with a Reuters poll

of economists. About 22 of the 25 those surveyed had predicted

the BOT would raise rates by 25 bps, while three had projected a

bigger 50 bps hike.

“We were looking for something a bit more aggressive. The

fact that they (BOT) only went 25 (bps) has already prompted a

negative reaction in the baht and clearly we’ve seen quite a

sharp weakening since the decision,” said Mitul Kotecha, Head of

EM Strategy at TD Securities.

The rate hike also comes after inflation in the

tourism-reliant economy touched a 14-year high in August, and a

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weaker currency exacerbated the price pressures by raising the

cost of imports.

“The risk is certainly there that they (BOT) will need to

hike more aggressively,” Kotecha said.

Meanwhile, the US Federal Reserve’s ever more hawkish

outlook on policy tightening raised global recession fears and

cast a shadow over Asian emerging markets.

Prospects of further rates hikes by central banks worldwide,

a weak sterling due to large unfunded UK tax cut plans, and an

unrelenting rally in the US dollar continued to weigh on

risk-sensitive Asian emerging currencies.

South Korea’s won and the country’s benchmark

index were the lead decliners in the region as they fell

1.3% and 2.5%, respectively.

The Indian rupee and Singapore’s dollar

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depreciated 0.4% and 0.5%, respectively. Equities in Mumbai

and Singapore shed 0.1% and 1.4%.

The dollar index, which measures the greenback

against a basket of currencies, gained 0.4% to 114.61, and

earlier hit a new two-decade high of 114.70.

Indonesia’s rupiah weakened 1% to hit a more than

two-year low, even as an official said the country’s central

bank has continued with its “triple intervention” to guard

against excessive falls in the rupiah exchange rate.

Stocks in Jakarta rose 0.3% and were the only bright

spot among the region’s equities.

China’s yuan fell 0.7%, its weakest since January

2008, while equities in Shanghai dropped 1.6%.

HIGHLIGHTS:

** Thai factory output rises 14.52% in August, beats

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forecast

** India’s RBI likely sells dollars as surging US yields

hold rupee hostage – traders

** S.Korea to buy back 2 trln won treasury bonds – vice fin

min

The following table shows rates for Asian currencies against

the dollar at 0728 GMT.

COUNTRY FX RIC FX FX INDE STOCKS STOCKS

DAILY % YTD % X DAILY YTD %

%

Japan +0.08 -20.4 <.n2>

China 9 EC>

India -0.40 -9.25 <.ns ei>

Indonesi -0.98 -6.68 <.jk a se>

Malaysia -0.32 -9.95 <.kl se>

Philippi +0.14 -13.5 <.ps nes i>

S.Korea 4 11>

Singapore -0.53 -6.74 <.st e i>

Taiwan -0.34 -13.1 <.tw ii>

Thailand -0.85 -12.7 <.se ti>

(Reporting by Upasana Singh in Bengaluru)

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