BoT asked to keep baht competitive

The government has asked the Bank of Thailand to find ways to curb the baht's appreciation even though the currency has already weakened by 2.6% this week.

  • Published: 26/04/2013 at 07:37 PM
  • Newspaper section: topstories

The impact of the baht's recent rise was the topic of talks on Friday between officials of the Finance Ministry, the central bank and the National Economic and Social Development Board at Government House.

The talks had been planned earlier when the baht was surging past 29 to the US dollar. But the baht has since weakened substantially, trading on Friday at 29.33/39, down from 28.91/94 on Wednesday. The baht had briefly touched 28.56 on Monday.

Currency traders reacted strongly on Friday after Areepong Bhoocha-oom, the permanent secretary for Finance, said the ministry might adjust conditions on the purchase of government bonds, without providing details.

He has said that the ministry wanted to encourage more Thai residents to buy bonds.

Most of the gains in the exchange rate have been driven by foreign investor demand for baht to purchase Thai government bonds.

Mr Kittiratt, who chaired Friday's meeting, said no special measures were planned to curb the baht's strength for now, but the central bank and others must watch developments closely.
 
The central bank's Monetary Policy Committee (MPC) is facing pressure to cut its policy interest rate of 2.75%. The rate is seen as a factor attracting funds into the country, prompting the baht to rise.

The MPC will hold its next meeting on May 29.

Mr Kittiratt did not specify what the exchange rate should be but said its movement against the dollar should be in line with those of the currencies of Thailand's trade partners and competitors.

Mr Areepong said the Finance Ministry in the past few months had issued inflation-linked bonds worth 40-50 billion baht, which attracted high interest from foreign investors.

The ministry wants to shift to issuing savings bonds for retail domestic buyers which would help curb the impact of a stronger baht, he said. Currently, around 80% of the government's bonds are held by Thais and the rest by foreigners.

Meanwhile, calls for the central bank to cut its interest rate to rein in the baht are rising.

Now is the right time for a rate cut, says the National Institute of Administration (Nida).

The baht has made big gains this year because of massive foreign capital inflows reflecting foreign investors' confidence in Thailand's strong economic fundamentals, said Montree Sokatiyanuruk, director of Nida's executive MBA executive programme.

He said factors contributing to confidence included the government’s planned 2-trillion-baht infrastructure megaproject programme, and the raising of the country’s credit rating by international rating firms.

The Bank of Thailand for several months has refrained from cutting its policy rate because of its concerns about inflation.

But inflation remains benign, at an annualised rate of 2.69% in March, down from 3.23% in February and 3.63% in December. The figures are well within the target range and now is therefore a suitable time to cut the policy rate, said Mr Montree.

"The central bank should take into account both domestic and outside economic stability in making a decision whether or not to reduce the policy rate," he said.

"I think it is the right time to cut the rate now, to slow down foreign capital inflows, to enhance balance in the economic system and to create trade opportunities to boost exports."

If the baht continues to remain as strong as it is now, it would severely affect the country's exports in the second quarter of the year, the academic said.

The value of exports in baht terms in February declined 4.58% to 529.52 billion baht, from 554.93 billion in January.

Even though the dollar value of exports in March increased 4.55% year-on-year to $20.76 billion, the trade competitiveness of Thai manufacturers was down on the back of higher prices for Thai products, Mr Montree said.

Bank of Thailand governor Prasarn Trairatvorakul on Friday declined to comment on whether the central bank would take steps to curb the baht, or call an extraordinary meeting of the MPC.

Earlier on Friday, Payungsak Chartsutthipol, chairman of the Federation of Thai Industries (FTI), said the private sector on Tuesday would propose five measures to stabilise the baht to the central bank.

The measures include a one percentage point reduction in the repurchase rate, along with other means to control foreign fund inflows, he said.

Exporters were being severely affected by the current strength of the baht, he said.

Exports of gems and jewellery were down in value by 40%, while the automobile, textile and food industries now faced the problem of a decline in future orders, Mr Payungsak said.

The FTI chief said the government should not lower its 2013 export growth target, set at 8-9%, but it should find ways to settle the currency problem in order to achieve the export expansion goal.

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