Most emerging Asian currencies weakened against a stronger US dollar on Thursday (Sept 29), with Thailand's baht shedding more than 1% following a quarter-point rate hike that investors viewed as moderate to bring down inflation running at a 14-year high.
Thailand's central bank chief said the bank was ready to adjust the pace of tightening monetary policy if needed and would be prepared to hold an off-cycle meeting if necessary.
The comments came a day after the Bank of Thailand (BOT) hiked its key interest rate by 25 basis points (bps) to tame inflation running far above its target range of 1% to 3%.
"We continue to expect gradual BOT tightening over the coming months," said Chua Han Teng, a DBS Research Group economist.
"Still above-target inflation warrants additional interest rate increases, but an economic recovery that has lagged peers and is facing threats from a global slowdown cautions against aggressive hikes."
The baht led losses in the region, hovering near Wednesday's low of 38.45 per US dollar — a level unseen in more than 16 years. The currency has lost about 12.7% so far this year.
Meanwhile, the US dollar's rally on the back of an ever more hawkish Federal Reserve weighed on emerging Asian currencies, with Indonesia, South Korea, Taiwan and China stepping forward to stabilise their financial markets.
Stabilisation efforts from policymakers around the world, including the Bank of England's (BOE) recent move, can help restore market confidence and provide a temporary breather to risk assets, said Christopher Wong, FX strategist at OCBC.
The BOE said on Wednesday it would buy as much as £5 billion (US$5.4 billion) a day of long-dated government bonds until Oct 14. The announcement came after unfunded tax cuts announced in Britain last week triggered financial chaos globally.
"The strong USD trend still needs to dissipate for currency markets to take a more meaningful breather," said Wong.
The dollar index, which measures the greenback against a basket of six currencies, rose 0.5% to 113.59. It had touched a 20-year high of 114.78 on Wednesday.
The Malaysian ringgit fell 0.3%, and the Philippine peso dipped 0.4%, while the Singapore dollar weakened 0.5%. India's rupee eased 0.1%.
The rupiah firmed 0.1% after hitting its lowest since April 2020 on Wednesday. South Korea's won and the Taiwan dollar rose 0.1% each.
Equities in Southeast Asia were broadly higher, with Jakarta and Shanghai the only markets trading in negative territory.
Singapore and Bangkok led gains in the region, rising 1.1% each. Equities in the Philippines climbed 0.8% while those in India rose 0.5%.