Foreign investors are parking money in Thai assets in the short run because they see the baht as a safe haven backed by solid foreign reserves amid global market fluctuation, the central bank chief says.
But the Bank of Thailand has instruments up its sleeve to curb capital flows if needed, Bank of Thailand governor Veerathai Santiprabhob said at a seminar held yesterday by Land and Houses Bank.
Thailand's strong external front, as seen by high international reserves, is encouraging foreign investors to shift money back to the Thai capital and bond markets, at least in the short term.
"Thailand currently has reserves of around US$200 billion, including US dollar forwards, representing the 12th-highest foreign reserves in the world," Mr Veerathai said.
And while the recent capital flows are considered minimal, moving money in or out of the country at the same time could create volatility in the baht's value.
The baht rose to 34.99 to the US dollar yesterday from 35.02 on Wednesday. The local currency has appreciated 2.4% this year, compared with 0.9% gains in Malaysia's ringgit and Indonesia's rupiah, according to Reuters data.
"These kind of money flows into the country strengthen the baht, which, in our opinion, is not good for the Thai economy," Mr Veerathai said.
He said the central bank may use some of its policy instruments, rather than a floating exchange rate, to curb baht fluctuation if capital flows are judged as not beneficial to the economy.
"In the current stage of a highly fluctuating world, it's the central bank's duty to have a wide range of policy instruments in its menu to be ready to use," Mr Veerathai said.
The portion of foreign investor holdings in Thai government bonds is smaller than in Malaysia's or Indonesia's, a condition that lessens the risk of sudden capital flows causing currency volatility.
"Thailand has only about 9% of government bonds held by foreigners, while it's as high as 40-50% in the case of Malaysia and Indonesia," Mr Veerathai said.
He voiced confidence that the Thai economy would experience a broader-based recovery in 2017 after last year's uneven showing.
The Bank of Thailand forecasts 2017 GDP growth of 3.2%. The central bank's Monetary Policy Committee is set to review the forecast and reveal the outlook for 2018 at its next meeting on March 29.