Asian stock exchanges extended their losses on Thursday as currencies tumbled following the US Federal Reserve’s third consecutive 75-basis-point interest rate hike, signalling more next year, stoking recession fears.
Yesterday, the baht fell 0.6% to 37.38 per US dollar, its lowest level since October 2006, as the greenback reached new highs against regional currencies such as the yen, won, yuan, Singapore dollar, and Australian and New Zealand dollars.
The Thai baht has fallen nearly 11% this year, with most losses occurring since the start of the Ukraine war.
On the other hand, Thailand’s Stock Exchange (SET) finished higher thanks to large purchases of tech, banking, and automotive shares, despite drops in Hong Kong’s Hang Seng Index, the Shanghai Composite, the Nikkei 225, and South Korea’s Kospi.
The drop occurred after the United States raised interest rates by 0.75% to 3.00-3.25%, the highest level since 2008, causing losses on Wall Street’s benchmark S&P 500 index, the Nasdaq Composite, and US futures.
US policymakers, chastised for being too slow to recognize the scope of the US inflation problem, have forecast a further 1.25 percentage point tightening before the end of the year as they race to catch up.
Interest rates are expected to reach 4.4% this year and 4.6% in 2023 before falling to 3.9% in 2024.
Looming Recession from overspending
Chairman Jerome Powell promised that the Fed would “crush inflation” and that officials were “determined” to bring it down to the 2% target. “We will work at it until a recession is diverted,” he said.
Mr. Powell also suggested that taming inflation might come at the expense of a recession.
“No one knows whether this process will result in a recession or how severe that recession will be,” he said at a press conference following the meeting.
According to Mr. Powell, a soft landing with only a minor increase in joblessness would be “very difficult.”
The Fed’s board of directors forecasted that the US economy would grow by 0.2% this year, down from 1.7% expected in March.
The median forecast among the 19 Fed officials is for unemployment to rise to 4.4% next year and remain there until 2024, up from 3.7%.
The sentiment was further harmed by Russia’s escalation of its conflict with Ukraine and tensions between China and Taiwan.
Asia’s central banks followed suit, with Hong Kong’s Monetary Authority raising its overnight discount window base rate by 75 basis points to 3.5%, the highest level since 2008.
In the Philippines, the rate was raised by 50 basis points to 4.25%, the highest since August 2019, while Bank Indonesia raised its policy rate by 50 basis points to 4.25% for the second month.
Japan sells off US Dollars.
Meanwhile, the Japanese government and the Bank of Japan intervened to buy yen and sell dollars for the first time in twenty-four years, according to Masato Kanda, Japan’s vice-finance minister for international affairs, as the central bank maintained its ultra-loose monetary policy.
The yen fell past 145 to the dollar, a 24-year low, after Bank of Japan governor Haruhiko Kuroda made bearish remarks indicating he had no plans to raise interest rates anytime soon.
Analysts in Thailand predicted that the central bank would raise the policy rate from 0.25% to 0.75% at the next meeting to reflect the direction of global interest rates.
“There is a chance that the Monetary Policy Committee meeting on September 28 will raise the rate by 0.25% to 1.00% after the first increase in almost four years on Aug 10 by 0.25% to 0.75%,” said a CGS-CIMB Securities analyst.
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