The Bank of Thailand raised interest rates during the 1997 Asian financial crisis to defend Thailand’s currency.
Thailand had maintained a fixed exchange rate linking the baht closely to the U.S. dollar. Heavy borrowing, property speculation, weak financial institutions, and growing doubts about the peg encouraged investors to sell the baht. The central bank spent reserves and raised interest rates in an effort to protect the exchange rate.
Those defenses failed, and Thailand floated the baht on July 2, 1997. The currency then depreciated sharply, helping spread financial pressure to Indonesia, South Korea, Malaysia, and other economies. International Monetary Fund assistance followed for Thailand and several other countries.
The crisis was not simply a stock-market crash. It combined currency devaluations, banking problems, collapsing asset prices, and corporate debt. Thailand’s abandoned currency peg is widely regarded as the event that opened the regional crisis.