Dealing with capital inflows into Thailand when the baht appreciates
- Published: 14/09/2010 at 02:03 PM
- Online news:
The US dollar is losing value (weakening, depreciating) while Asian currencies have been gaining value (strengthening, appreciating). This makes Asian exports more expensive which could have a negative effect on the Thai economy.
This "baht appreciation" also makes Asian stocks and investments cheaper and more attractive, so investment money is flowing into Thailand.
Central bank plans for interest rate hikes in the near future to control future inflation could make Thai investments even more attractive for foreigners seeking higher interest rates and this could lead to even further flows of investments into the country. These plans might be put on hold now.
Today's article discusses efforts being taken to slow the rise of the baht. The article begins here:
Inflow may top B100bn in 12 months by Nuntawun Polkuamdee
Capital inflows could reach 100 billion baht over the next 12 months, spurring gains for both local equities and the baht.
The Stock Exchange of Thailand index, which closed Friday at 924.57 points, has gained over 25% for the year to date thanks to net foreign buying of more than 17 billion baht, much coming in the past several weeks.
The baht, meanwhile, has hit levels not seen since the 1997 economic crisis, and fell under 31 to the US dollar last week due to the weakness of the greenback and fund inflows spurred by new investment and a steady trade surplus.
Usara Wilaipich, a senior economist at Standard Chartered Bank, said the baht and other Asian currencies were likely to continue rising against the dollar due to inflows to Asia.
But she said the Bank of Thailand, under pressure from exporters to intervene in the currency markets, should not look to impose harsh measures.
Fund inflows are to be expected considering that Asian economies will continue to outperform other regions for the near future. High deposit rates and fundamentally solid public and private sector balance sheets will also help draw capital flows to the region.
Ms Usara said the central bank may consider its tightening cycle for monetary policy, as further rate hikes may only draw further capital flows due to a widening interest rate gap with the West.
Tax measures such as cutting import tariffs on machinery would help exporters ramp up new investment at lower cost while easing pressure on the baht through fund outflows.
Malaysia has already stopped its policy to raise rates, and Korea is considering doing the same. If exporters are too affected from the appreciating baht, it would affect GDP growth in the second half," Ms Usara said at an investment conference last week.
Kavee Chukitkasem, an assistant managing director at Kasikorn Securities, said it was possible that the central bank could ask local banks to delay baht-denominated bond sales to foreign investors to help ease upward pressure on the currency.
(Source: Bangkok Post, Economics, Inflow may top B100bn in 12 months, BoT may need to ease off on rate hikes, 13/09/2010, Nuntawun Polkuamdee, link)
appreciate - when a currency increases in value relative to other currencies, making the country's goods and services more expensive
depreciate - when a currency decreases in value relative to other currencies, making the country's goods and services less expensive
capital inflows - investment money flowing into a country
US dollar weakens - US dollar depreciates, grows less in value, making US exports cheaper, imports from other countries more expensive
interest rate hikes - increases in the interest rate
inflation - rise in prices over the whole economy
inflow - something coming into a place
capital inflows - investment money coming into a country from other countries (entering the stock market, bonds, direct investment in businesses and companies (FDI))
ease - to make less severe บรรเทา
ease off - reduce speed (or perhaps even stop)
interest rate - a percentage of the total amount loaned by a bank that it charges as a fee (interest) for borrowing money (the principal)
interest rate hikes - when the central bank increases policy interest rates (contractionary, makes less credit and loans available, tends to reduce growth and reduce money supply in the long-term) การปรัีบตัวสูงขึ้นของอัตราดอกเบี้ย
rate hikes - interest rate hikes
local - belonging to this country (here: Thailand)
equities - stock shares in a company that represent partial ownership of the company หุ้น
Stock Exchange of Thailand (SET) - Thailand's stock exchange (See Wikipedia)
Stock Exchange of Thailand index, SET Index - calculated from all stocks trading on SET, this index shows how the value of stocks trading on SET are changing over time (See Wikipedia)
crisis - an urgent, difficult or dangerous situation วิกฤต
1997 economic crisis - Asian financial crisis, the "a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion" (See Wikipedia)
greenback - US dollar
weakness of the greenback - weak US dollar, which means the US dollar is less valuable to other currencies than it was before, which tends to make US export goods cheaper in other countries and the export goods of other countries such as Thailand more expensive
fund - large amounts of money เงินทุน กองทุน
spurred - caused ก่อให้เกิด
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
steady - continuous without stopping
trade surplus - when the value of exports is greater than imports for an economy
pressure - trying to force someone to do something
intervene - 1. to become involved in a situation in order to try to stop or change, 2. when the government buys and sells in markets to influence prices and supply and demand it แทรกแซง, สอดแทรก
currency - a widely used the money accepted for exchange of goods in an economy เงินตรา (See Wikipedia)
impose - to introduce something, such as a new law or new system and force people to accept it นำกฎหมายมาบังคับใช้, กำหนด,บังคับ
harsh - strict, unkind and often unfair อย่างรุนแรง
measures - actions taken to solve a problem มาตราการ
expected - believe will happen คาดว่า (จะเกิดขึ้น)
outperform - to do well in a particular job or activity compared to others of a similar type ทำสำเร็จกว่า
deposit - to leave something somewhere ทับถม, สะสม
sector - a part of the economy (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) ภาค (เศรษฐกิจ) (See Wikipedia)
capital - money invested in a business (See glossary)
central bank - a government monetary authority in charge of monetary policy, issues currency, regulates supply of loans and credit, holds the reserves of other banks and foreign currencies (See Wikipedia)
monetary policy - the policy of the central bank in influencing the cost and availability of credit through interest rates and other measures, with the goals of promoting economic growth, full employment, price stability and balanced trade with other countries
tight monetary policy - when increases in central bank interest rates, decreases in money supply and/or increases in reserve requirements have a contractionary effect on the economy, but also helps reduce and control inflation long-term, also known as "contractionary monetary policy" (See Wikipedia) tightening cycle for monetary policy - a period of time when interest rates are increased to reduce the amount of loans and money in the economy, this in turn may slow down the economy a bit
policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย
interest rate - the percentage of a loan paid annually for using someone else's money
gap - a space or opening in the middle of something or between things ช่องว่าง
interest rate gap - the difference in the interest rates between two possible investment places (so money may flow from one to the other)
import - to buy or bring in products from another country นำเข้า
tariffs - taxes on imports (to make foreign goods less competitive in a country) พิกัดอัตราภาษีศุลกากร
ramp up - increase
GDP - Gross Domestic Product, a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) delay - to make something happen at a later time than originally planned or expected เลื่อน
baht-denominated - meaning: for buying and selling purposes the asset is given its value in baht
upward pressure on the currency - things forcing the value of the currency increase (and make exports of the country more expensive)
ease pressure - reduce pressure
ease upward pressure on the currency - reduce pressures making the value of the currency increase
About the author
- Writer: Jon Fernquest
Position: Assistent Manager Educational services