Baht hits 34 to dollar as greenback falls

Bangkok Post (31 October 2007)

Uncertainty persists before Fed meeting. The baht and other currencies in the region gained against the falling dollar yesterday as uncertainty over the US Federal Reserve's interest rate policy caused the greenback to weaken. The baht yesterday touched 34.00 to a dollar, up from 34.04 on Monday, as the dollar slipped against the yen and hit a new low against the euro. Investors largely expected the Fed to cut its policy rate by 25 basis points to 4.50% today to stem the sub-prime mortgage crisis. However, new speculation has arisen that the Fed might maintain its interest rate. The shift from US-denominated assets ahead of the Fed meeting pushed up regional markets and currencies on Monday. Local currency dealers expected the baht to continue to appreciate and stand at 33.30/40 to a dollar at the end of the year, close to the high of 33.20 witnessed in June. Thiti Tantikulanan, head of capital markets at Kasikornbank, said the baht was expected to continue appreciating along with regional currencies because of the depreciation in the US dollar. ''The baht could possibly [break above 34] to a dollar this week and may stand at 33.30/40 baht at the end of this year. That is close to the 33.20 to a dollar we saw in June,'' he said. Mr Thiti said exporters actively sold dollars to buy hedging contracts, while importers had maintained their positions. The dollar weakness caused currencies to strengthen across the region. The Philippines peso rose 2.5%, the Singapore dollar 2.3%, the Malaysian ringgit 1.8%, the Indian rupee 1.1%, the Korean won 1%, the Taiwan dollar 0.8% and the baht 0.78%. ''We suspect the central bank has intervened in the currency market actively during the past two months,'' Mr Thiti said. The increase in international reserves _ including net forward positions _ by about $1.5 billion per week, compared to less than $1 billion earlier, reflected the central bank's intervention, he added. In addition, yesterday the falling dollar pushed up the oil price to a new high. Central bank officials maintained that the baht's appreciation was in line with regional currencies. Tarisa Watanagase, the governor of the Bank of Thailand, said the central bank has been monitoring oil prices, which have jumped due to external factors, mainly Middle East tension. She said the rise in oil prices should not affect the central bank's core inflation target of 0-3.5%, which excludes energy and food prices.''We have tried to contain inflation within this range, rather than fluctuating along the oil prices. However, the indirect effects that feed to transportation costs is beyond our control,'' Dr Tarisa said. Amara Sriphayak, a central bank senior director, said the oil price remained within the $75 per barrel Dubai crude average that forecasters have been using. In the worst case, she said, Dubai crude could average $80 per barrel in the fourth quarter.