A surge in short-term foreign investment has strengthened the baht rapidly since the beginning of the year, but regulators and analysts expect the fast pace to ease soon.
Niwat Kanjanaphoomin, president of the Thai Bond Market Association, said short-term foreign investment flows increased by 5 billion baht in the middle of last week from the beginning of the year, with short-term bond purchases skyrocketing the past few days.
He said the flows will likely decline in a few months as public debt crises in Europe and the US ease.
The capital inflows are likely to be less than last year's increase of 280 billion baht, which raised outstanding foreign holdings to 720 billion, said Mr Niwat.
The baht appreciated by 1.7% during the first five operating days of this year to 29.85 to the US dollar yesterday.
The local bond market comprised 70% of short-term investment, said Mr Niwat.
"The amount of inflows soared on Monday and Tuesday by several billion baht in short-term bonds such as the central bank's bonds following the baht appreciation," he said.
He attributed the inflows to investors perceiving an opportunity to profit from the baht appreciation in addition to prevailing interest rate differentials.
Bank of Thailand officials said the appreciation resulted mainly from foreign capital inflows but was in line with regional currencies such as the ringgit.
Parson Singha, a senior strategist at HSBC, said investors and exporters sold dollars in recent days to lock in gains after a rally on Monday, so this adds pressure for the baht to appreciate further.
The baht appreciated less than other regional currencies in last year's fourth quarter, he said. A decline in exports and an increase in Thai companies' foreign investment helped to counter the increase in baht demand.
"There is little market intervention from the central bank. It appears to have few concerns about the current baht appreciation," said Mr Singha.
Krirk Vanikkul, the central bank's deputy governor for financial institutions stability, said the central bank has not detected any signs of property speculation, as banks have not lowered their credit standards.
But low domestic interest rates have encouraged investors to buy property for investment, he said.
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- Writer: Parista Yuthamanop