Thai stock market plunges with central bank reserve measures

In a drastic reaction to the Bank of Thailand's decision to impose a mandatory reserve on short-term capital inflows, Thailand's stock market suffered worst ever loss on Tuesday.

After the Bank of Thailand (BOT) announced new measures to curb the baht's sharp rise in recent months, in which, starting from Tuesday, the financial institutions are required to withhold 30 percent of foreign currencies bought or exchanged against the baht, except those related to exports, the Stock Exchange of Thailand (SET) composite index plummeted 108.41 points, the biggest single day drop in its 31-year history, or 14.84 percent to close at 622. 14.

The baht closed at 35.85-90 to the U.S. dollar on Tuesday, after hitting a new nine-year high of 35.12 on Monday. The baht appreciated by 14 percent since the start of this year.

Trading was temporarily suspended for thirty minutes, as the circuit-breaker system was used for the first time in SET history as the index dropped over 10 percent at 11.28 a.m local time (0428GMT), according to Thai News Agency (TNA).

Thirachai Phuvanatnaranubala, secretary general of Thailand's Securities and Exchange Commission, was quoted by The Nation news website as saying that the BOT's new measure has reduced the SET's market capitalization by as large as 500 billion baht (13.9 billion U.S. dollars).

He said foreign investors are wary of more measures introduced by the central bank. However, he warned them to wait and consider well the consequence before shifting their capital out of the country, or they might loose investing opportunities.

Some local economists were quoted by local media as commenting that the central bank's 30 percent reserve measure was too severe, which could adversely impact on both short-term and long-term capital flow.

Source: Xinhua