BOT plans to issue bonds worth Bt130 bn; foreign investors yet to use $5 bn of withholding money
Published on March 4, 2008
On the first day of the removal of capital controls yesterday, the offshore and onshore baht rates converged to almost the same level, while the Bank of Thailand stepped into the foreign exchange market to sell the baht heavily to rein in the currency's appreciation.
The baht, bonds and stock market yesterday responded positively to the removal of the capital controls. But exporters were forced to sell off their dollar holdings for fear of a stronger baht.
"We've taken care of [the baht]. This is a transition period for the currency. If we let it go, it will be difficult to handle later," Suchada Kirakul, the BOT's assistant governor said.
The baht in the onshore market was stronger from the opening of the trading session at Bt31.50 to Bt31.55 against the dollar, and peaked at Bt31.50 during day trade before closing at Bt31.60-Bt31.62.
The baht in the offshore market was trading at Bt31.40-Bt31.90. The convergence of the onshore and offshore rates was widely expected as investors in Singapore were no longer apprehensive about the capital controls.
The BOT also asked for cooperation from commercial banks and specialised financial institutions to omit foreign-exchange transactions to speculatively manage their net foreign-exchange positions, aiming to prevent the volatility of the baht.
The BOT plans to issue Bt130 billion worth of bonds in the first two weeks of March to absorb liquidity in the market caused by the baht intervention.
The bond market was yesterday volatile with thin trading transactions. Bond yields were lower in the morning trading session but turned around in the afternoon.
The yield curve of government bonds declined in the morning yesterday, as it also did last Friday. The market believed that the central bank would soon cut policy interest rates to curb the interest-rate gap in order to lower capital inflows after the capital control was lifted.
The 10-year bond yield yesterday morning was lower by 30 basis points, while the 20-year bond yield was down by 28 basis point. In the afternoon, overall yields were up slightly. Thus, bond yields closed down by 3-16 basis points, mostly in bonds with a maturity of five years or more.
Nattapol Chavalitcheevin, president of ThaiBMA, said the yield curve reversed its trend in the afternoon when the Commerce Ministry announced that inflation in February jumped to 5.4 per cent.
Dealers changed their view on the policy rate, projecting that the central bank would not slash the rate.
Trading volume, however, was minimal, at only Bt44 billion, compared with Bt112 billion last Friday. Foreign investors participated in the market to the volume of Bt1.5 billion on the first day of the capital control's removal, compared to Friday's Bt603 million.
The yield curve declined since Friday, particularly the five-year bond yield that was lower by 26 basis point from the previous day and 13 basis points on Monday morning.
Usara Wilaipich, senior economist of Standard Chartered Bank (Thai), said the Bank of Thailand should manage the policy interest rate spread between Thailand and the US rather than going for aggressive intervention.
Usara predicted Thailand's policy signal rate is likely to be cut by 125 basis points this year from 3.25 per cent presently to 2 per cent. At the same time, the Fed fund rate is expected to be cut by 200 basis points in the third quarter of this year from 3.0 per cent now to 1.0 per cent. The US is facing fears of recession and a crisis in its financial system.
At present, the inflation rate is not a key problem for the Thai economy. It is expected to peak early in the second quarter of this year.
Usara forecast that the baht would be stronger this week, though it would not be stronger than the central bank maximum target of Bt31.50 against the greenback, she said.
Thiti Tantikulanan, head of capital markets at Kasikornbank, said foreign investors would not yet convert their reserve money kept by the central bank (due to the 30-per-cent measure) into baht.
Most foreign capital has been invested in the bond market and they are expected to further invest in the market with the expectation of a downward trend in the interest rate. As a result, the reserves of foreign capital from the capital control would not cause the baht to appreciate.
Foreign capital that has been reserved by the 30-per-cent withholding measure has a combined worth of around US$5 billion. Earlier, there was concern that foreign investors would convert their money, kept earlier by the central bank, into baht, which would put more pressure on the baht.
The Thai stock market fell 0.34 per cent as abolition of the 30-per-cent capital reserve requirement helped cushioned the impact from the sharp fall in Wall Street and Asian stock markets.
The SET composite index moved was in roller coaster mode before ending at 842.92. Turnover was moderate at Bt29.67 billion.
The Thai stock market edged up before mid-day while other Asian stock markets tracked Wall Street's steep losses as the 30-per-cent withholding reserve was removed, Kiatnakin Securities assistant vice president Wiriya Lappromrattana said.
Asia Plus Securities' director Therdsak Taveeteeratham said that investors should watch to see if the central bank cuts its policy rate at the next meeting after the 30-per-cent reserve removal.
The Securities and Exchange Commission (SEC) yesterday reported that the central bank had approved another US$12 billion for financial institutions' overseas investment, raising the total amount to $30 billion, according to the SEC's statement.
This is a part of the central bank's effort to reduce the baht's appreciation after the 30-per-cent withholding reserve was removed.
The BOT also allowed individuals to invest abroad through securities companies. However, the investment channels were limited at listed securities and sovereign bonds.
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Published on March 4, 2008
On the first day of the removal of capital controls yesterday, the offshore and onshore baht rates converged to almost the same level, while the Bank of Thailand stepped into the foreign exchange market to sell the baht heavily to rein in the currency's appreciation.
The baht, bonds and stock market yesterday responded positively to the removal of the capital controls. But exporters were forced to sell off their dollar holdings for fear of a stronger baht.
"We've taken care of [the baht]. This is a transition period for the currency. If we let it go, it will be difficult to handle later," Suchada Kirakul, the BOT's assistant governor said.
The baht in the onshore market was stronger from the opening of the trading session at Bt31.50 to Bt31.55 against the dollar, and peaked at Bt31.50 during day trade before closing at Bt31.60-Bt31.62.
The baht in the offshore market was trading at Bt31.40-Bt31.90. The convergence of the onshore and offshore rates was widely expected as investors in Singapore were no longer apprehensive about the capital controls.
The BOT also asked for cooperation from commercial banks and specialised financial institutions to omit foreign-exchange transactions to speculatively manage their net foreign-exchange positions, aiming to prevent the volatility of the baht.
The BOT plans to issue Bt130 billion worth of bonds in the first two weeks of March to absorb liquidity in the market caused by the baht intervention.
The bond market was yesterday volatile with thin trading transactions. Bond yields were lower in the morning trading session but turned around in the afternoon.
The yield curve of government bonds declined in the morning yesterday, as it also did last Friday. The market believed that the central bank would soon cut policy interest rates to curb the interest-rate gap in order to lower capital inflows after the capital control was lifted.
The 10-year bond yield yesterday morning was lower by 30 basis points, while the 20-year bond yield was down by 28 basis point. In the afternoon, overall yields were up slightly. Thus, bond yields closed down by 3-16 basis points, mostly in bonds with a maturity of five years or more.
Nattapol Chavalitcheevin, president of ThaiBMA, said the yield curve reversed its trend in the afternoon when the Commerce Ministry announced that inflation in February jumped to 5.4 per cent.
Dealers changed their view on the policy rate, projecting that the central bank would not slash the rate.
Trading volume, however, was minimal, at only Bt44 billion, compared with Bt112 billion last Friday. Foreign investors participated in the market to the volume of Bt1.5 billion on the first day of the capital control's removal, compared to Friday's Bt603 million.
The yield curve declined since Friday, particularly the five-year bond yield that was lower by 26 basis point from the previous day and 13 basis points on Monday morning.
Usara Wilaipich, senior economist of Standard Chartered Bank (Thai), said the Bank of Thailand should manage the policy interest rate spread between Thailand and the US rather than going for aggressive intervention.
Usara predicted Thailand's policy signal rate is likely to be cut by 125 basis points this year from 3.25 per cent presently to 2 per cent. At the same time, the Fed fund rate is expected to be cut by 200 basis points in the third quarter of this year from 3.0 per cent now to 1.0 per cent. The US is facing fears of recession and a crisis in its financial system.
At present, the inflation rate is not a key problem for the Thai economy. It is expected to peak early in the second quarter of this year.
Usara forecast that the baht would be stronger this week, though it would not be stronger than the central bank maximum target of Bt31.50 against the greenback, she said.
Thiti Tantikulanan, head of capital markets at Kasikornbank, said foreign investors would not yet convert their reserve money kept by the central bank (due to the 30-per-cent measure) into baht.
Most foreign capital has been invested in the bond market and they are expected to further invest in the market with the expectation of a downward trend in the interest rate. As a result, the reserves of foreign capital from the capital control would not cause the baht to appreciate.
Foreign capital that has been reserved by the 30-per-cent withholding measure has a combined worth of around US$5 billion. Earlier, there was concern that foreign investors would convert their money, kept earlier by the central bank, into baht, which would put more pressure on the baht.
The Thai stock market fell 0.34 per cent as abolition of the 30-per-cent capital reserve requirement helped cushioned the impact from the sharp fall in Wall Street and Asian stock markets.
The SET composite index moved was in roller coaster mode before ending at 842.92. Turnover was moderate at Bt29.67 billion.
The Thai stock market edged up before mid-day while other Asian stock markets tracked Wall Street's steep losses as the 30-per-cent withholding reserve was removed, Kiatnakin Securities assistant vice president Wiriya Lappromrattana said.
Asia Plus Securities' director Therdsak Taveeteeratham said that investors should watch to see if the central bank cuts its policy rate at the next meeting after the 30-per-cent reserve removal.
The Securities and Exchange Commission (SEC) yesterday reported that the central bank had approved another US$12 billion for financial institutions' overseas investment, raising the total amount to $30 billion, according to the SEC's statement.
This is a part of the central bank's effort to reduce the baht's appreciation after the 30-per-cent withholding reserve was removed.
The BOT also allowed individuals to invest abroad through securities companies. However, the investment channels were limited at listed securities and sovereign bonds.
Finance Reporters
The Nation
Discuss
Add this link to...
Tell a friend
Bury
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