With the Bank of Thailand’s policy space approaching its limit, plans are being formulated to weaken the baht’s value by relaxing curbs on capital outflows to promote international investment.
Pongpen: Monetary easing less effective
"The policy interest rate remains our primary tool [for managing fiscal stability], but we have to admit that the room and effectiveness [of monetary easing] have reduced. We cannot lower it to zero like some superpower countries, so we are reaching the lowest point possible," said Pongpen Ruengvirayudh, deputy governor overseeing monetary stability and a member of the Monetary Policy Committee.
The one-day repurchase rate, the central bank's benchmark rate, stands at 1.5% after cuts in March and April that the Bank of Thailand called a harsh dose of medicine to counter downside risks to growth.
The central bank has its own figure indicating how much the benchmark interest rate can be reduced, Mrs Pongpen said.
The current rate is only 25 basis points higher than the record low of 1.25% implemented during the 2009 global financial crisis.
The Bank of Thailand has devised plans to allow retail investors to expand their foreign investments without intermediaries such as stockbrokers in a bid to encourage investors to increase their risk diversification.
The baht yesterday fell significantly to 35.86/35.88 to the US dollar from 35.63/35.66 on Thursday.
Mrs Pongpen said the first phase of easing capital outflow regulations would begin next year, when qualified investors, specified as those with deposits or portfolios worth 100 million baht or corporations with assets valued at 1-5 billion baht, will be allowed to invest in all types of offshore securities, deposits in foreign banks and derivatives available inside and outside the exchange markets.
The second phase, scheduled to start in 2017, will permit retail investors to expand their investments into all types of offshore securities, deposits in foreign banks and derivatives available only within exchange markets.
The gross transfer limit in both phases will be capped at US$5 million annually.
"Our objective is aimed at stakeholders who would reap benefits from [financial] liberalisation. The weakening baht or a reduction of incurred deficit [in the central bank’s balance sheet] are byproducts, and they are not our main objective," Mrs Pongpen said.
She said effects on foreign exchange from the plans were deemed manageable, and greater weight should be placed on how investors would be allowed to diversify their portfolios.
Earlier, the central bank announced plans to change foreign exchange regulations under the Capital Account Liberalisation Master Plan's phase two, which took effect last month.
Notable measures include allowing residents the free purchase of foreign currencies for deposit up to an outstanding limit of $5 million from $500,000 and raising the limit for purchase of immovable properties including leasehold properties abroad to $50 million a year from $10 million.