The cabinet on Tuesday discussed the four remedies to curb capital inflows and rein in the baht proposed by the Bank of Thailand, said a member of parliament who attended the cabinet meeting.
The strongest proposal is a mandatory hedging for foreign capital inflows to discourage them from gaining from currency exchange, together with a foreign capital reserve similar to the 30% imposed by former finance minister MR Pridiyathorn Devakula in 2006.
The mildest proposal prohibits foreigners from buying central bank bonds, while another sets a minimum of three or six months for foreigners to hold Finance Ministry bonds. The final option is to impose a fee on foreigners investing in the debt market if the investment gains.
The source, who declined to be named, said the strongest measure is unlikely to be used as the cabinet feared a massive impact similar to the market crash in 2006 when identical remedies were enacted.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said the central bank can immediately implement the two mildest measures as it is authorised to do so. To require foreigners to hold bonds for a period of time, the government is ready to help, though an amendment is needed.
"The Monetary Policy Committee says we should consult related agencies, but the MPC is not specific about which agencies we should consult. You are directly responsible in this regard, mind you," said Mr Kittiratt.
Areepong Bhoocha-oom, the finance permanent secretary, ruled out capital controls as a measure to tame the influx of capital inflows because it will spook investors.
However, capital controls may be considered if the baht surges to 20 to the dollar, he said.
Mr Areepong said other measures such as financial institutions' loan extension control must be imposed if the central bank decides to slash the interest rate.
Meanwhile, the private sector asks policymakers to keep baht appreciation in line with regional currencies to promote self-adjustment among local businesses.
Payungsak Chartsuthipol, chairman of the Federation of Thai Industries (FTI), said the Standing Committee on Commerce, Industry and Banking expected the baht to strengthen in the near future as the economic fundamentals of Asian economies are better than those in the US and Europe.
Although the baht has eased to around 29.50 to a dollar in recent weeks from its peak at 28.50, local businesses should not believe this level is sustainable.
Rapid baht appreciation this year hurt local exporters, so closer coordination between the Finance Ministry and central bank is needed to handle currency surges, said Mr Payungsak.
The committee, which comprises the FTI, the Thai Chamber of Commerce and the Thai Bankers' Association, will visit the central bank on May 16 for an update on the baht, he added.
Kobsak Pootrakul, executive vice-president of Bangkok Bank, said cooperation between the central bank, the government and the private sector is necessary for the economy to weather the currency appreciation.
The central bank stepped up dollar purchases in the foreign exchange market on April 24 to curb the baht's rise. Its action and investors' demand for the dollar in spot and forward markets caused the baht to drop to 29.80 a few days later, he said.
Strong foreign capital inflows to the debt market, exporters' panicky sale of dollars and speculation pushed up the baht in the first quarter.
"Regional currencies have started to strengthen and the baht will continue. It will be difficult for the central bank to intervene to rein in the baht," said Mr Kobsak.
Exporters need to be more efficient in dealing with baht surges in the longer term, as buying currency hedging contracts is a short-term measure, he said. Other measures include settling invoices in baht and pricing in currency changes.
The government should consider measures to help exporters adjust over the long term, he added.