The Bank of Thailand will shave 80 billion baht from its April issuance of short-dated bonds as a means to curb baht speculation, says a senior official.
"The tapering of the short-term bonds will help prevent the use of Bank of Thailand bonds for the purpose of currency speculation," said Don Nakornthab, senior director in the macroeconomic and monetary policy department at the central bank.
The Bank of Thailand will cut its new weekly supply of three- and six-month bonds by 10 billion baht each, from 40 billion issued weekly in March, constituting a total reduction of 80 billion.
The baht is among the best-performing currencies this year, rising 4% against the US dollar. The rapid gain in the baht began mid-March after the US Federal Reserve stepped back from its hawkish stance on future rate hikes and US President Donald Trump's healthcare bill failed to actualise.
Mr Don said that because Thailand's current account surplus remains high, foreigners see the baht as a safe haven against the backdrop of the volatile global financial market, resulting in offshore funds to flood into Thai short-dated notes and pressuring the baht's appreciation.
"Some inflow is also attributed to currency speculation," he said.
Foreign investors poured money with a net value of US$1.27 billion into Thai bonds in February, up from $516 million bought in January, raising their purchase to almost $1.8 billion year-to-date, according to the Bank of Thailand data.
As of February, Thailand has a $10.7 billion in current account surplus, while the Bank of Thailand recently revised its forecast for Thailand's current account surplus upwards to $36.9 billion from $26.9 billion estimated in December last year.
Mr Don said foreign fund inflows continued in March, compelling the central bank to act on the matter.
He said that this "market mechanism" measure, under which the Bank of Thailand changes its own operations in the bond market, is only one among several instruments that it has at its disposal to conduct monetary policy.
"If foreign investors want to park their money in the country, they can purchase long-term bonds, the values of which will be not be changed by the central bank," said Mr Don.
Separately, he said that the Thai economy continued to expand in February, while the recovery of merchandise exports persists in most products.
On a balance-of-payments basis, Thai merchandise exports numbered $18.4 billion in February, up 0.7% year-on-year. If gold export value was exclude, it was $17.7 billion, up 8.4%.
Mr Don said that the upgraded outlook of merchandise exports this year is support by stronger global demand and the stronger baht is not expected to cause a serious blow to export growth.
He said private consumption also picked up in February, particularly in spending in durable goods, which was supported by improvements of farm income and stronger consumer confidence.
"Private investment remained sluggish in the first two months of this year but we believe it will start to pick up in the second half, following the manifestation of state investment in infrastructure projects," Mr Don said.
He said that he expects the Thai economy to grow at the faster pace in the second half of this year while the gross domestic product growth (GDP) for the first half is expected to be close to the 3% recorded in the fourth quarter of 2016.
The Bank of Thailand also announced Thailand's household debt at the end of 2016 stood at 11.47 trillion baht, up 3.4% year-on-year and 1.2% quarter-on-quarter.
The ratio of household debt to GDP remains unchanged from 79.9% at the end of last year.