BOT fights back in war against baht
SHORT-TERM baht interest rates soared on offshore markets to more than 1,000 per cent yesterday, after the Bank of Thailand ordered all 29 local banks and foreign bank branches not to engage in baht transactions with foreign speculators, dealers said.
Foreign currency speculators were shocked to learn during the early morning session that local and foreign banks in Thailand had received an order not to do business with them on the swap market.
This was a hardball tactic employed by the BOT to punish currency speculators, who hectically scrambled for the Thai currency to close their positions after they had earlier built up short positions against the baht.
''We've received an order from the authorities not to allow non-residents to borrow the baht through the swap market," said a dealer for a foreign bank in Bangkok.
Since foreign speculators were unable to get their hands on the baht in the Bangkok market, they had to scramble for the Thai currency from the offshore markets, such as Singapore, Hong Kong, London or New York.
With a relatively small baht supply available offshore, the cost of borrowing the baht exploded to more than 1,000 per cent, resulting in massive losses for speculators.
Dealers said the BOT timed its move perfectly by choosing Thursday to launch the strategy. As an international practice, delivery of currency transactions takes two days. Speculators who sold the baht short for the US dollar on Thursday are required to deliver the baht on Monday, since Saturday is a holiday.
''With the exorbitant cost of 1,000 per cent, that means some speculators will be paying 1,000 per cent every day for borrowing the baht, totalling 3,000 per cent for three working days," the dealer said.
Prime Minister Chavalit Yongchaiyudh issued an urgent message in the evening in support of Finance Minister Amnuay Viravan, as well as reaffirming Thailand's policy not to devalue the baht or to change the currency-peg system.
He also said Thailand's macro-economy had improved and that Amnuay would announce additional measures to bolster confidence in the economy and the Thai financial system.
Dealers said the BOT won another round in the battle against currency speculators, as evidenced by a sharp appreciation of the baht in the spot market to Bt25.20/US dollar, against the mid-rate of Bt25.81/US dollar.
The baht has held firm against the US dollar since Wednesday the day the fierce battle reached a critical point after the central banks of Australia, Hong Kong and Singapore came to Thailand's rescue by selling the US dollar from their reserves to prop up the baht.
BOT Governor Rerngchai Marakanond said the battle of the baht had subsided since Wednesday, when the baht opened on the London foreign exchange market at Bt25.88. Earlier, speculators tried to break the Thai currency-peg system by dragging the baht off its trading band, pulling it down to Bt26.27 at one point.
The Exchange Equalisation Fund, a foreign exchange management arm of the BOT, also reported that the situation reversed yesterday when banks came over to its window to sell dollars in favour of the baht, amounting to around US$1 billion.
Rerngchai admitted that the BOT wanted to send a stern message to foreign speculators not to mess around with the baht again, because they would be punished most expensively.
''The currency attack is not over and the Bank of Thailand has not won the war amid the political and economic uncertainties," stressed a dealer from a Singapore-based foreign bank.
On the spot market, dollar/baht trading yesterday was quoted in a range between Bt25.35 and Bt25.50 for a dollar, or Bt0.36 above the mid rate of Bt25.85.
In the swap market, the central bank pushed up short-term swap rates as high as 150/300 satang to defend the baht, a big 500 per cent jump from the previous day.
The one-month swap rate increased to 90/110 satang from 23/26 satang last Wednesday. The six-month and 12-month rates jumped to 140/145 satang and 200/210 satang, compared with 67/69 satang and 110/115 satang, respectively.
The higher the swap premium, the lower the profit the speculators will earn out of dollars in hand.
Overnight the interbank rate rose to 18 per cent while the call rate was at 25 per cent. The interfinance rate stayed around 22 to 25 per cent.
BY THANONG KHANTHONG and JIWAMOL KANOKSILP