The trap is closing. Fast.
The US Fed, in total panic mode, has cut again yesterday by 0.5 at 3 %. Eight days after a cut of 0.75.
And apparently this new fix of dope had no real effect : Wall Street closed down last night.
And even worse, the Fed left the door open to more cuts by saying in its statement that “downside risks to growth remain“…
It means that interest rates in Thailand (3.25 %) are now higher than in the US.
The next meeting of the Monetary Policy Committee of the BOT is scheduled on february 27.
So what will happen now ? The downward pressure on USD, versus all the other currencies, especially the asian ones, is likely to increase.
And the BOT will continue to do what it did before : trying to curb the appreciation of THB, to save thai exports, by buying more and more of something that is loosing value every day : the US dollar (look at the ever increasing foreign currency reserves).
It’s the “walking-toward-the-cliff-with-a-smile” policy.
I really do hope that the new government will try to think out of the box this time.
It’s good to hear some thai voices (that’s new) that start to say that the current situation is not sustainable and that it might be a good idea to let the THB rise, in order to offset the energy bill and stimulate private investments throught imports.
Read for instance the article of Supavud (managing director for Phatra Securities) in Bangkok Post : “The Fed pumps liquidity into the financial market in the short term, but it risks credibility with higher inflation in the longer term. [Asian economies] should not tie their currencies with the dollar“.