How Much Is The Bot Spending To Prop Up The Baht?

[ray23]

The article mention that when the debate is over things will settle down. I donlt think so the PAD is still at the gate. Quiet this week but I'm sure that will change now. I don't for one minute think the political upheaval is finished just because the the PPP, survived the debate. There was never any chance of them losing in the first place. If this is going to be the BOT approach they are going to be spending a lot of those famous cash reserves.

The current budget under conideration would appear a plan to dip into those reserves a well. This may not be a good thing considering the cost of oil ect and inflation.

"Thai Baht Completes Fifth Weekly Loss on Record Oil; Bonds Rise

By Shanthy Nambiar

June 27 (Bloomberg) -- Thailand's baht completed a fifth weekly decline on speculation record oil prices will widen the nation's current-account deficit, fueling demand for dollars. Government bonds rose.

The currency is the biggest loser this month of the 10 most-active currencies in Asia outside Japan as investors sold the nation's assets because of accelerating inflation and political protests. The currency pared an earlier decline after Prime Minister Samak Sundaravej won a confidence vote today for his five-month-old government following a week-long debate.

``Given our view that oil prices are unlikely to ease significantly this year, Thailand's external balance sheets will continue to deteriorate,'' said Thio Chin Loo, a senior currency strategist at BNP Paribas SA in Singapore. ``It will put pressure on the Thai baht. The state of Thai politics also remains fragmented and fairly weak.''

The baht fell 0.4 percent this week to 33.54 per dollar as of 4:47 p.m. in Bangkok, according to data compiled by Bloomberg. It has declined 3.1 percent this month.

Thailand's interest rates can be raised to temper inflation without damping economic growth, Deputy Governor Bandid Nijathaworn said today. The central bank has kept its one-day bond repurchase rate at 3.25 percent since last August.

The current-account deficit reached $1.66 billion in April, the widest since a $1.76 billion shortfall in June 2005, according to central bank data. The price of oil, which has more than doubled in the past year, pushed import costs to a record.

Eroding Surplus

``The surplus has eroded quite sharply this year, so that is taking support away from the Thai baht,'' Thio said.

Samak won 63 percent of the vote, reflecting the two-thirds majority his coalition won in the Dec. 23 elections. Some 162 lawmakers voted against him, fewer than when he was elected Prime Minister on Jan. 28. Samak agreed to the censure debate after more than 20,000 demonstrators stormed his office on June 20 demanding his resignation.

``Sentiment will be bearish on the baht until we get more clarity on issue,'' said Kobsidthi Silpachai, head of capital markets research at Kasikornbank Pcl in Bangkok. ``We have tried the parliamentary process. The protestors aren't going to be happy and they are going to put more pressure.''

The Bank of Thailand may be supporting the currency, DBS Group Holdings Ltd. said in a note to clients today. The baht may fall to 34.50, the note said.

Thailand's international reserves fell to $105.5 billion in the week ending June 20 from a record high of $110.1 billion on May 23, according to data compiled by Bloomberg dating back to July 1998. The decline in reserves suggests it may have been purchasing the local currency.

Bonds Rise

Ten-year government bonds gained. The yield on the 5.125 percent note due March 2018 fell 1 basis point, or 0.01 percentage point, to 6.14 percent, according to the Thai Bond Market Association. The price rose 0.08, or 0.8 baht per 1,000 baht face amount, to 92.66.

The government will remove subsidies on gas used by households over the ``long-term'' and within the next two months for vehicles and industries, Finance Minister Surapong Suebwonglee said today. Thailand has subsidized liquefied petroleum gas and natural gas to help contain inflation.

``Prices should reflect real costs but in a peak period like this, the government needs to maintain some subsidies to help consumers,'' Surapong said.

The local currency may fall to 34 by the end of July as investors ``re-price the baht because of inflation,'' Silpachai said. ``Trading is very choppy right now. The sentiment is that Asian central banks are behind the curve on inflation.''

To contact the reporter for this story: Shanthy Nambiar in Bangkok at [email protected].

Last Updated: June 27, 2008 06:02 EDT "

Edited June 27, 2008 by ray23

[Edonista]

Thailand's international reserves fell to $105.5 billion in the week ending June 20 from a record high of $110.1 billion on May 23, according to data compiled by Bloomberg dating back to July 1998. The decline in reserves suggests it may have been purchasing the local currency

Bloomberg forgets to say that reserves were just 50 billion two years ago...Tarisa has a long way to go to dump back all the excess $ she had to buy to keep the baht low till a couple of months ago.

[cclub75]

SINGAPORE, June 26 (Reuters) - The Bank of Thailand stepped into the currency market once again on Thursday, selling dollars to defend the weakening baht, traders said.

"They sold (dollars) from 33.60 to 33.55," said one Bangkok-based trader.

At 0240 GMT, the baht was quoted at 33.53/57 per dollar, just off a 6-month low of 33.60 it struck first on Wednesday.

Another trader in Bangkok confirmed the central bank had been in the market since the start of trading.

Reuters

[cclub75]

Bloomberg forgets to say that reserves were just 50 billion two years ago...Tarisa has a long way to go to dump back all the excess $ she had to buy to keep the baht low till a couple of months ago.

Indeed. But let's not forget that is not a zero sum game...

BOT bought USD in 2007, until march 2008. And now, reverse mode, the BOT is selling USD.

Let's call it even...

But the BOT has issued a torrent of bonds, to mop up the liquidities on the local market (BOT was buying the USD, exchanging them for THB)... What will remain ? A large debt. And with interests to be paid...

[by looking at the financial report 2006, the maturity is 2 years max]

Interest expenses for 2007 totalled 47.43 billion baht on debt issues of 1.37 trillion made to manage market liquidity and sterilise capital flows. (Bangkok Post)

Read also : "Currency “management” : BOT lost 228 billions THB since 2006, and has a debt of 2 trillions"

Edited June 27, 2008 by cclub75

[Edonista]

But the BOT has issued a torrent of bonds, to mop up the liquidities on the local market (BOT was buying the USD, exchanging them for THB)... What will remain ? A large debt. And with interests to be paid...

[by looking at the financial report 2006, the maturity is 2 years max]

Interest expenses for 2007 totalled 47.43 billion baht on debt issues of 1.37 trillion made to manage market liquidity and sterilise capital flows. (Bangkok Post)

Read also : "Currency "management" : BOT lost 228 billions THB since 2006, and has a debt of 2 trillions"

Well, I think all the baht Tarisa will receive from the dollars she is selling will have to be used somehow...buying back those bonds on the market perhaps ?

[cclub75]

Well, I think all the baht Tarisa will receive from the dollars she is selling will have to be used somehow...buying back those bonds on the market perhaps ?

It's not perhaps. Page 17 financial report 2006.

http://www.bot.or.th/English/AboutBOT/Fina...Pages/Year.aspx

"Maturity less than 1 year (70 % of the total issued, [my calculation, total issued 880 billions])

Maturity more than 1 year (due in 2008)

The BOT, with consent of Ministry of Finance, has issued the bonds in order to use as an instrument of monetary policy

implementation. In 2006 the interests paid on the bonds amounting to 31 billions was included in the interest expenses"

This system was used on a massive scale in 2007. I guess with the same time line. So yes, in 2008, starting now, the BOT is going to flow the domestic market with liquidities (redeeming bonds).

So actually, what managed the BOT was just to postpone, delay the effects of its "monetary policy implementation" (AKA currency management, AKA currency manipulation)...

And bad luck... 2008 is when inflation starts to get out of control. Really bad luck !

Or other solution : at maturity, issue new bonds, to continue the system. But bad luck again... interest rates are on the rise ! Hum...

In a way, this is a very buddhist story... eventually, we always pay for our actions.

Edited June 28, 2008 by cclub75