The Bank of Thailand's Monetary Policy Committee (MPC) plans to focus more on the foreign exchange rate when formulating its policy in a bid to reinforce the country's export competitiveness.
It hopes to use exports to shore up the lacklustre economy amid limited pass-through effects on internal factors of its recent rate cuts.
The tepid recovery in domestic demand and exports, divergence in major economies' monetary policy direction and a slowdown in Asian economies are factors prompting the rate-setting committee to place a greater emphasis on foreign exchange, said Mathee Supapongse, the central bank's assistant governor for monetary policy and the MPC's secretary.
However, he insisted a weakening currency was not a panacea for boosting export recovery.
"We have to admit currency value has a greater weight, but we'll use it as a channel for transferring the effects of monetary policy, while interest rates will remain the main tool for policy implementation," Mr Mathee said. "Foreign exchange movements will be taken more into account because their pass-through effects have been quite good."
His comments came after April's surprise policy rate cut weakened the baht sharply. The local currency last month sank to a nearly six-year low against the US dollar, a move that exporters hope will help their products to become more competitive against those of their rivals.
The Commerce Ministry reported April exports declined by 1.7% year-on-year to US$16.9 billion, a fourth consecutive month of contraction but an improvement from a 4.45% decline in March, 6.15% in February and 3.46% in January.
Mathee: Baht value not the primary factor
Exports in the first four months contracted by 3.99%. Shipments are the main pillar for Thai economic growth, as they make up 60-70% of GDP.
Mr Mathee said the MPC wanted to communicate to the public that while foreign exchange made a greater impact on exports and economic growth, currency value was not the primary factor uplifting export recovery, and Thailand had to place a greater emphasis on production competitiveness and developing value-added products.
Despite Thailand's current account surplus and foreign direct investment (FDI) inflows, the baht's value has been adjusted in line with changes in the policy interest rate, and the currency's movement must be monitored further, Mr Mathee said.
In addition, with foreign exchange considered a "shock absorber" against domestic and external problems, changes in the policy interest rate would have a pass-through effect on the foreign exchange rate, he said. Adjustments in the benchmark interest rate also affect loan growth and lending rates offered by financial institutions.
The baht has weakened to a certain degree, but the depreciation trend has been stable, Mr Mathee said, adding that FDI inflows into the country were continuing despite inflows of equities and bonds contracting year-to-date.
Charl Kengchon, managing director of the Kasikorn Research Center, said the central bank seemed to have shifted from maintaining financial stability to considering the baht to be a means of stimulating sluggish economic conditions since pass-through effects from the rate cuts had been slow.
Yesterday's announcement by the Bank of Thailand is confirmation to financial markets that the central bank wants the baht's value to be more competitive compared with other regional currencies, he said.
Separately, Mr Mathee said Thailand's economy was not experiencing deflation despite negative headline inflation for a fifth consecutive month, as prices of goods had not declined substantially and pressure from oil prices would ease.