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Stable baht to follow pause on policy rate

The baht is likely to move in a narrow range in response to market expectations that the Bank of Thailand’s Monetary Policy Committee (MPC) will hold the policy rate steady at its meeting today.

“A [rate] pause appears to be the general consensus, and hence market reaction to it may be minimal,” Parson Singha, chief market strategist at HSBC Thailand, said yesterday.

The MPC has nudged the policy rate up seven times in a row to 3.50 per cent, after a rate pause a year ago.

Prasarn Trairatvorakul, the central bank’s governor, said early this month that monetary policy stood ready to respond if the global economic situation changed and the Thai economy needed stimulus.

The policy rate is widely expected to be left unchanged because of the many risks facing the economy.

“It’s likely a choice between a pause and a rate cut. A pause would be viewed as more conservative and responsible, and should be generally more supportive for the baht in the [foreign-exchange] market,” Parson said.

“There would probably be more of a reaction if the BOT cut the rate, as some businesses are hoping, and that would likely lead to improved sentiment and risk appetite at least in the short term.”

The baht traded at 30.76 per US dollar as of 5.30pm yesterday, compared with 30.60 a day earlier.

Standard Chartered Bank expects the currency to weaken to 32.0 per dollar by the end of this year.

“The baht will likely remain in a two-way direction for the rest of this year and next year due to volatile portfolio flows” in the stock and bond markets, said Usara Wilaipich, StanChart’s Bangkok-based senior economist.

The Stock Exchange of Thailand is likely to be volatile after news on the ailing US economy and Europe’s struggling sovereign debt crisis unless these problems are solved and Thailand’s worst floods in decades that forced a number of temporary plant shutdowns dissipate.

The SET Index yesterday slid 18.88 points, or 1.94 per cent, to 952.75 points on turnover of Bt23.12 billion as concern mounted over the likely deterioration in publicly traded companies’ earnings due to the flood crisis.

The equity market is expected to welcome a rate pause in today’s MPC meeting as there is a likely change from the previous hawkish tone, said Joanne Goh, regional equity strategist at DBS Bank in Singapore.

“The central bank has also allowed for a greater tolerance on inflation, which means that measures to boost personal consumption can be implemented without markets worrying too much about potential rate hikes,” she said.

Source: The Nation

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