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 Investment
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20 Sep 06 21:23
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Thai baht falls after military coup
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AFP
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SINGAPORE - The military coup in Thailand triggered a sell-off in the baht Wednesday as investors looked for safety in a knee-jerk reaction which dealers said would likely be limited unless there was an outbreak of violence.
At 1:40 pm (0540 GMT), the baht was quoted at 37.68 to the dollar, down from 37.305 late Tuesday. It had hit a low of 37.805 in early trade.
Dealers said the baht was not expected to fall below 38 to the dollar unless the military coup took a violent turn or signs emerged of internal divisions within the army.
Satoru Ogasawara, a strategist of global foreign exchange research at Credit Suisse First Boston in Tokyo, said the political unrest in Thailand had affected other Asian currencies.
"The Thai baht is falling," Ogasawara said. "Since the situation is still unclear, I don't think the currency can recover easily."
At the same time, the Asian currencies have built up resilience to volatility due to the experience of regional the financial crisis in 1997, he said.
"These countries have tried to stabilize the financial system since then ... There is information that the king is moving to stabilize the politics. We need to carefully watch the situation," Ogasawara said.
The US dollar was mostly higher against other Asian currencies.
It rose to 1.5876 Singapore dollars from 1.5858 on Tuesday afternoon, to 9,166 Indonesian rupiah from 9,145, and to 50.280 from 50.105 but slipped to 32.908 Taiwan dollars from 32.928.
In Singapore, Alvin Liew, an economist with Singapore's United Overseas Bank, said the baht's fall was a "knee-jerk reaction."
"There will not be any more severe impact on the currency ... right now everything seems to be set in place for a peaceful transition," he said.
"I don't expect any sharp movements in the currency unless the situation turns violent, which looks unlikely."
Thailand's armed forces seized power Tuesday from Prime Minister Thaksin Shinawatra in a late-night bloodless coup, revoking the constitution and imposing martial law after months of political turmoil.
Coup leaders declared Wednesday a national holiday and ordered top civil servants and key business chiefs to a 9:00 am (0200 GMT) meeting at military headquarters "to learn about the new policy".
Singapore's DBS Bank said in a report the market reaction to the coup "was considered to be relatively benign.
"The market was glad that the coup was peaceful so far and no one really subscribed to the idea of a repeat of the (1997) crisis given Asia's strengthened liquidity position and banking sectors," DBS Bank said.
The 1997 Asian financial crisis was sparked when the Thai government allowed the baht to float freely in the face of a sharp deterioration in the country's balance of payments.
The currency tumbled, sparking a collapse in Thailand's financial system which then spread across Southeast Asia and the broader region and required a massive International Monetary Fund-led bailout to halt.
Standard and Poor's warned in a report political uncertainties arising from the coup, including the possible postponement of an election previously expected in November, could impair the country's creditworthiness.
Fitch Ratings also placed its ratings for Thailand on review for possible downgrade, "reflecting the increased uncertainty about sovereign credit trends in Thailand in light of the apparent coup attempt launched in Bangkok."
Moody's Investors Service, however, was less concerned, suggesting the coup was largely a domestic political, rather than financial, development.
"If the coup clears the way for the scheduling of elections on a timely basis ... then the political situation could rapidly normalize," it said. - AFP
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