Economists expect the baht to slide past 33 per US dollar on concerns over capital outflows amid the political unrest in Thailand and planned reduction of monetary stimulus in the United States.
The SET Index dropped 5.2 per cent or 67.94 points to close at 1,230.77 yesterday, heading for its lowest close since September 2012. Other Asian stock markets were also down after a reported slowdown in Chinese manufacturing growth.
Trading across the region was quiet after the New Year break. The dollar held on to its recent gains against the yen, sitting just below five-year highs.
Sydney added 0.29 per cent, or 15.7 points, to 5,367.9 while Seoul tumbled 2.20 per cent, or 44.15 points, to close at 1,967.19.
Shanghai lost 0.31 per cent, or 6.59 points, to 2,109.39 and Hong Kong added 0.14 per cent, or 33.66 points, to 23,340.05.
Tokyo and Wellington were closed for public holidays.
On Wednesday, China's official purchasing managers' index (PMI) for December came in at 51.0, down from November's 51.4 and below the median 51.2 forecast of eight economists by The Wall Street Journal. Anything above 50 points to growth while a figure below indicates contraction.
Meanwhile in Thailand, Benjarong Suwankiri, head of TMB Analytics at TMB Bank, said the political situation had pressured the baht to weaken faster than expected. Earlier, he forecast the Thai currency to depreciate to 33 per dollar when the reduction of US asset purchases come into effect.
It now is highly possible for the baht to fall through 33 per dollar, he said, though he believes Thai exports will keep it from retreating beyond 33.50.
The baht touched 32.958 yesterday, the weakest level since March 1, 2010, after losing 6.9 per cent last year in the biggest yearly drop since 2000, Bloomberg said.
"Portfolio flows will be affected, given the ongoing political situation," the news agency quoted Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore, as saying. "The question is whether the central bank is going to make any moves to ease policy."
Bank of Thailand spokeswoman Roong Malikamas cited local political factors, planned tapering of the US monetary stimulus, foreign portfolio adjustment and thin turnover on money markets as the forces pushing the baht closer to the 33 mark.
Several factors have been priced into the baht, she said, and the BOT is waiting to see whether market expectations come true.
The baht may ease its decline once there is political clarity after the current deadlock is broken, Bloomberg quoted a research note from Bank of Tokyo-Mitsubishi UFJ as saying on Tuesday.
Amid the depreciating baht and low inflationary pressure, prices of consumer products may not be affected, as imports account for 20 per cent of consumer goods, Roong said.
She explained that there were other factors besides the depreciating baht driving up production costs and product prices, and, based on a recent survey, business operators said they would not be able to raise prices. The weaker currency would benefit exporters, who may see higher liquidity from rises of baht income and higher profit.
The central bank also expressed no concern over household debts, which rose to 80.1 per cent of gross domestic product as no-collateral consumer loans dropped from 30 per cent in 2012 to 10 per cent with more careful behaviour of lenders and borrowers.
In November, the rate of non-performing loans rose to 2.3 per cent from 2.2 per cent in the previous month. Auto loans inched up to 1.9 per cent from 1.8 per cent.
Commercial banks also set aside provisions to cope with any situations that may arise, Roong said, adding that the BOT expected its policy-rate cut to 2.25 per cent to help soothe debt burdens.
