Thailand's baht hit a six-week low on Wednesday after the central bank unexpectedly cut its policy interest rate for a second month in a row, and said measures aimed at reducing the currency's strength would be unveiled imminently. Most emerging Asian currencies eased on position squaring as investors awaited the outcome of a Federal Reserve policy meeting and first-quarter US economic growth data. The Bank of Thailand slashed the one-day repurchase rate by 25 basis points to 1.50 percent, defying market expectations that the central bank would stay pat.
Last month, the central bank surprised markets with a rate cut. After the move, the baht lost as much as 0.6 percent to 32.79 per dollar, its weakest since March 18. The five-year government bond yield also fell to as low as 1.95 percent, the lowest since August 2003. "The easing bias is still there," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
"It depends on the outcome of the FOMC, but the top side (in dollar/baht) of 33 could be re-tested," Ji said, referring to the Federal Open Market Committee's policy outcome later in the day. Helped by inflows into bonds, the Thai currency has risen 0.3 percent against the dollar so far this year. A stable baht and the prospect of further monetary easing have made Thai government bonds one of Asia's best fixed-income investments this year.
But, the baht's strength has hindered the economy, exports in particular. It barely moved in 2014 when other Asian currencies lost ground on expectations of US interest rate hikes, slowing growth and policy easing. The Bank of Thailand said it will announce capital measures on Thursday to encourage outflows to stem the baht's appreciation. The central bank may make it easier to invest abroad, possibly by removing limits on the amounts that Thai investors and companies can invest elsewhere, traders said.
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