Bank of Thailand governor Veerathai Santiprabhob warns that investors should brace for wild swings in the global capital market next week as fears escalate of Britain leaving the European Union.
Medium and long-term risks could be seen if the so-called Brexit camp wins the referendum vote on Thursday.
Although the central bank has policy tools to prevent volatility from derailing Thailand's economic recovery, Mr Veerathai rushed to soothe the jitters without specifying any measures.
"High volatility could incur in financial and capital markets globally next week and such volatility would continue in the medium and long terms if Britain decides to leave its EU membership," he said.
Under the Brexit scenario, there would be new negotiations between Britain and the EU that could affect several economic dimensions on a global scale, he said.
"Thai businesses associated with this development between Britain and the EU have to monitor the situation closely, hedge against [financial] risks and adopt prudential risk management," said Mr Veerathai.
Opinion polls showing the Leave campaign ahead are clouding sentiment and reducing appetite for risk assets around the world.
Gold, regarded as a safe haven, headed for a third weekly advance yesterday. Bullion for immediate delivery rose as much as 0.6% to $1,286.31 an ounce before trading at $1,282.73 at 2.48pm in Singapore, according to Bloomberg generic pricing. The metal touched $1,315.71 on Thursday, the highest level since August 2014.
Whether a Brexit scenario materialises or not, the situation will induce fluctuations in foreign exchange and prices of financial assets, while there have been movements of capital from high-risk countries to those with lower risks depending on investors' views of the likely referendum result, said Mr Veerathai.
BMI Research said in a recent note that it holds a short-term bullish view on the baht as a bullish technical pattern appears to be in play, supported by a large current account surplus and other positive fundamentals. It forecast that the baht will average 35.40 to the US dollar this year and 35.10 next.
"With the Bank of Thailand intervening over the near term to prevent strength amid huge current account inflows, fundamental upside pressure is clear," the research house said.
"A break of 34.50 to the dollar would be a bullish signal suggesting further appreciation to 33. Support does not come in until 36.00 in the event of weakness."
Such a huge current account surplus raises the question of whether the baht is undervalued, it said.
"The ongoing rise in foreign reserves as the Bank of Thailand purchases foreign currencies to prevent the baht's appreciation is another signal that the currency should perhaps be stronger than the current level," BMI Research said.
Thailand's current account surplus in the first quarter came in at an estimated 15% of GDP, the largest it has been since the aftermath of currency devaluation in 1997.
Separately, the Finance Ministry is formulating a plan to set up an organisation to directly supervise thrift and credit cooperatives, aiming to enhance people's financial services.
