There is a strong likelihood the baht will continue to appreciate in value throughout the rest of the year, Arkom Tempitayapaisit, secretary-general of the National Economic and Social Development Board (NESDB), said on Tuesday.
This is because the United States, countries in Europe, and Japan are likely to continue implementing quantitative easing measures, which will result in capital inflow to countries in the Asian region with good economic fundamentals, including Thailand, he said.
Mr Arkom believed the US dollar will further weaken, strengthening the baht in the second, third and fourth quarters of the year.
He said average foreign capital inflow over the past five years was about US$2 billion per quarter, but over the past three quarters - the third and fourth quarters of 2012 and the first quarter of 2013 - it was as high as US$4 billion.
Most foreign capital went into the stocks and bond markets as they have a better rate of investment return, he said.
Mr Arkom said the NESDB had reported to the cabinet meeting that India, South Korea and Vietnam had cut policy rates to rein in capital influx and to stimulate the economy. Australia had also lately cut its interest rate.
Thailand's strong economic fundamentals had attracted foreign investors. Thailand also has a low inflation rate, low public debt, low unemployment and high foreign reserves, he said.
Negative factors that could derail the country’s economic expansion included the slower than expected global economic recovery and a risk of another round of the global economic crisis, the QE measures that push capital inflow to Thailand, the baht's strength that affected the export sector, and the delay in the government’s disbursements for infrastructure development megaprojects, he said.
In addition, the state must oversee investment in the stock market and property market, to ensure that it is in line with economic fundamentals to prevent formation of a bubble that could affect economic stability, said Mr Arkom.
An academic at the National Institute of Development Administration (Nida) warned on Tuesday that a reduction in the policy rate would not stabilise the baht if commercial banks do not also cut loan rates.
The central bank's monetary policy committee will meet on Wednesday to discuss whether the repurchase rate (RP) should be reduced, as called for by the private sector.
It is widely expected the panel will cut the policy rate to stimulate the economy and curb the baht's strength, thereby helping exporters struggling to overcome the impact of the over-valued baht .
However, Montree Sokatiyanulak from Nida said on Tuesday that there is concern that even if the RP rate were cut it would fail to spur the economy and export sector if commercial banks do not also reduce loan rates in line with the policy rate reduction.
In the past, after the monetary policy panel cut the key rate commercial banks would reduce deposit rates in line with the policy rate cut, but lending rates were only slightly reduced. Therefore, the cost to the private sector was not substantially lowered, as it should be, he said.
Finance Minister Kittiratt Na-Ranong said on Tuesday that the central bank should help exporters by stabilising the baht's value and curbing its strength. If it cuts the policy rate by only 0.25 percentage points, or leaves it unchanged, it would be ignoring the calls by the private sector.
Bank of Thailand governor Prasarn Trairatvorakul said he had no discomfort about the monetary policy panel meeting on Wednesday, because the members of the committee were all experts in their field.
The proposal should cover three aspects: monetary policy, fiscal policy and specific measures.
All related agencies will work together on the plan, and the Bank of Thailand governor will be invited into the process. Then the plan will be implemented by government agencies, she said.