The Bank of Thailand would let market mechanisms determine the baht's value rather than weaken it despite pressure from the recent yuan devaluation.
"There is no concern at the moment as the baht movement has stabilised," said central bank governor Prasarn Trairatvorakul during an exclusive interview with the Bangkok Post.
The move by the People's Bank of China (PBOC) to devalue the yuan is seen as a "catch-up game" rather than to ignite a currency war because the yuan had been strong in the past seven months as it was pegged to the strengthening dollar, whereas other Asian currencies had depreciated considerably prior to the yuan devaluation move, said Mr Prasarn.
China's currency fell to a four-year low on Thursday after the PBOC changed the way it calculated the reference rate around which the yuan was allowed to trade in a two percentage point band.
A third consecutive devaluation of 1% was ordered early Wednesday as markets and currency exchanges opened around the region.
The cuts have put financial markets on edge, sparking worries of a currency war as other countries feel pressured to devalue and raising questions about the health of the world's second-largest economy, where growth is already slowing.
The PBOC on Friday strengthened the yuan against the US dollar by 0.05%, ending three days of falls after the surprise devaluation.
Mr Prasarn said the baht took eight months year-to-date to weaken against the greenback by 7% compared with the three days it took for the yuan to depreciate by 4% against the US dollar.
"We think they [the Chinese central bank] would let the yuan fluctuate in order to demonstrate the currency would be more market-oriented," said Mr Prasarn.
A currency war would cause instability in the global financial markets because central banks would competitively devalue their currencies and all parties would experience an adverse outcome, he said.
"[And] I don't think it would really trigger a currency war as people are concerned that if one starts doing it [devaluing its currency] then others would need to follow suit, which isn't good for anyone," he said. "[But] we have to monitor the situation because we don't know exactly what is in their mind [Chinese government]."
For the impact on local economy, he said although current capital utilisation is low at the macroeconomic stage, on the micro-level there are businesses that may want to expand and an imbalance, or a weak currency, is deemed a penalty that would dent their investment incentives in foreign exchange.
"Although there is a weakening bias, we do not want any imbalance to occur as this might induce hidden problems or risks," he said.
Given the circumstances, Thailand does not need to implement an aggressive monetary stimulus measure, or quantitative easing, as there are available fiscal tools to manoeuvre, he said.
Central banks in Japan and the EU have been adopting ultra-loose monetary stimulus policies mainly because their governments' fiscal tools have diminished, while the US Federal Reserve still has a difficult time exiting its money-pumping programme after years of stimulus, said Mr Prasarn.
However, economists remain at odds whether the weaker yuan would help boost Thai exports and intensify the Asian currency war.
Usara Wilaipich, a Bangkok-based senior economist at Standard Chartered Bank, said the PBOC's move was seen as a "one-off event" that could help support China's economic recovery in the medium and long terms and in turn benefit regional growth.
"Effects on equity sell-off [in the Stock Exchange of Thailand] and the baht depreciation are deemed short-term market sentiments stemming from global investment repositioning," she said.
The PBOC's devaluation move is seen as an effort towards rebalancing its foreign exchange competitiveness. If it bears fruition, China could import more goods for both domestic consumption and re-exporting purposes to the EU and the US, said Ms Usara.
Reducing the yuan's strength against other Asian currencies is seen as one of two main motives behind the Chinese central bank's decision. The Chinese authorities also want the yuan to have greater exchange flexibility for the International Monetary Fund to accept it as one of its Special Drawing Rights, she said.
She said further monitoring has to be made on China's economic growth momentum to see if the PBOC would continue to lower the daily reference rate of the yuan.
Thai exporters have not benefited significantly since the baht depreciation has not been as extreme as that of other Asian currencies, said Amonthep Chawla, head of research at CIMB Thai Bank.
Besides Thai exports having problems over price and demand, China's policy aiming for its citizens to consume local products is another barrier for Thai shipments to China, he said.
Lower oil prices are also an issue as they cause commodity prices to fall, affecting the value of Thailand's commodity exports as a result, said Mr Amonthep.
If the yuan continues to slide, denting Chinese tourists' spending power, Thailand's tourism market could also be hit.