In early deals on Tuesday, the Thailand currency fell to a 1-year low against the US dollar as a state of emergency exists in Bangkok, Thailand as clashes between government supporters raised concern that parliament may be dissolved.
State radio announced that Prime Minister Samak Sundaravej declared the state of emergency today, giving police powers to members of the military in their efforts to restore order.
The state of emergency bans gatherings, meetings or any activities that might disturb the public order. The order also bars any news reports, publications or any other media that could cause misunderstanding or that will affect the stability of the state.
The Thailand currency dropped to a 1-year low of 34.52 against the dollar by about 9:15 pm ET. This may be compared to Monday's New York session close of 34.3150. If the Thai baht weakens further, 36.7 is seen as the next target level.
The Bank of Thailand Deputy Governor Atchana Waiquamdee said last week that political instability has overtaken inflation as the biggest threat to the economy. The central bank aims to ''contain volatility in the baht,'' she said on Aug. 29. ''We like to keep an eye on the nominal effective exchange rate to ensure the baht is not under- or overshooting other currencies.''
Thailand's annual inflation slowed significantly to 6.4% in August, the Commerce Ministry reported yesterday. Economists were expecting the consumer price inflation to ease to 8.7% from a ten-year high of 9.2% recorded in July.
Last week, the Bank of Thailand raised its key interest rate by 25 basis points to 3.75% in order to reduce rising inflationary pressures and to support economic growth.
In a statement accompanying the monetary policy announcement, the central bank said, "The MPC deemed that this increase in the policy interest rate would bring domestic interest rates to the levels that would continue to support economic growth."
Further, the apex bank said the rate-setting committee believes that risks to inflation remained an important issue of concern given the elevated level of inflation and inflation expectations, as well as uncertainty of oil prices in the periods ahead.
According to the MPC's assessment, uncertainties surrounding global economic growth have increased and need to be monitored closely. However, the central bank expects the downward trend in global oil prices and robust export growth to support economic growth in the future.
The Thai baht has been in a downward channel since March when it reached a multi-year high of 31.25. Since then, the Thai baht has depreciated around 9% against the dollar.
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