USD/THB – New BOT Rules push Baht Higher

Daily Chart

Following BOT rates decision on 9th Jan, Baht continue to grew in strength breaking 30.30 interim support along the way. Price went lower further today due to further announcement from BOT stating its intention to revise current rules on lending limits of banks. Current rule prevents banks from lending more than 25% of their Tier 1 capital to a single client, while the new rule which is coming into effect in 2013, will allow exceptions on a case-by-case basis.

There are pros and cons of such an arrangement. Banks welcome this move as it allows them to expand overseas and engage in high value M&As. However credit risk will be a huge concern from BOT’s point of view who does not wish any of their the banks to be brought down by 1 high profile default. Regardless, market appears to be supportive of deregulation with Baht climbing higher and the local SET index gaining 0.31%. In comparison, HSI fell 0.23% while STI drop 0.41%.

Weekly Chart

Weekly chart shows price breaking away from the 2012 lows, with the next support just above 29.60. With BOT sounding hawkish, and choosing to utilize non-rates tools to stimulate the Thai economy, there is lower risk of a surprise rate cut that can erode current Baht gains.

BOT is scheduled to meet again on 20th Feb 2013.

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