The baht continued to gain robustly yesterday amid policymakers' announcements to implement measures if necessary.
Markets expected currencies of most emerging economies to be under significant pressure of appreciation as the Federal Reserve, the Bank of Japan and the European Central Bank were likely to keep pumping in new liquidity to prop up their economies in the foreseeable future.
Kobsidthi Silapachai, Kasikorn Bank's head of capital market research, said investment funds' action of seeking gains from currency changes and interest rate differentials in short-term bonds in the domestic market every Tuesday has been a big factor pushing the baht up in the recent period, so the central bank might address the capital inflows by reducing the attractiveness of this channel.
The Bank of Thailand is the major issuer of such short-term bonds which it uses to absorb liquidity injected from market intervention transactions.
The Monetary Policy Committee's stance from the April 3 meeting showed that the majority of its members were not inclined to reduce the policy interest rate from 2.75% as a means to slow the baht's rise.
There is a strong correlation between foreign investors bidding in the central bank's bond auction and the baht's appreciation, Mr Kobsidthi said.
"Hedge funds have few risks subscribing to such short-term bonds. They will receive profits from the central bank in a short period when the bonds are due, without having to sell in the secondary market. The central bank should lengthen the maturity of the bonds, or create other means to control the money base," said Mr Kobsidthi.
Dividend payments of locally listed firms and persistent uncertainty due to the euro zone's banking crisis could delay the baht's appreciation in the near future. Mr Kobsidthi expects the baht to stand at 28.5 to a dollar by the year-end.
He said he anticipated the US central bank would continue money pumping into the foreseeable future, given bleak non-farm employment and the increasing upward pressure on the baht, aside from the Bank of Japan's aggressive yen weakening move.
Chantavarn Sucharitakul, the BoT's assistant governor, said the baht's strengthening was part of investors catching up from 2012 during which the baht appreciated by 3% against the dollar _ less than other regional currencies such as 6-7% recorded by the Korean won.
But there had been strong demand for foreign currency in the economy which helped to ease the appreciation of the baht.
"The baht's volatility is around 5% year-to-date, more than previously, and stood in the middle range of that of regional currencies. That the baht has moved in a two-way direction is a reason for the increase in the baht's volatility," she said.
Ms Chantavarn noted that the baht strengthened by 2.5 against the dollar over the past month, the fourth-best currency showing after the Icelandic krona, the Mexican peso and the Malaysian ringgit, all of which gained against the greenback during the same period.
She said countries in the region have different economic situations, resulting in the diverging directions of their currency movements in the year to date.
Maybank Kim Eng Securities CEO Montree Sornpaisarn said the depreciation of other major currencies is the main reason for the rapid rise of emerging countries' currencies including Thailand, but it is not a serious concern.
"Looking at Thailand's fundamentals, our economy remains strong, our current account is still in surplus with major industries such as tourism, automobiles and food expanding healthily," said Mr Montree. "These factors have attracted foreign capital chasing higher yields, so the rise of the baht is reasonable."