The continuing strengthening of the baht, which touched a 19-month high at 29.57 baht to the US dollar on Tuesday, was not a cause for concern, Bank of Thailand (BoT) governor Prasarn Trairatvorakul said on Wednesday.
This was caused by foreign direct investment inflow on the back of Thailand's continuing economic expansion and on reports that the country's credit rating had been raised, Mr Prasarn said. Fitch Ratings raised its assessment on Thailand by one level to BBB+ last week, citing a resilient economy and a more stable political environment.
He said the central bank already had reported the baht's appreciation to the BoT's Monetary Policy Committee and that there was no need to call an urgent meeting on this matter.
Bank of Thailand governor Prasarn Trairatvorakul (Photo by Wisit Tham-ngern)
"Personally, I think the baht situation is not worrying. The central bank has been implementing monetary policy to ensure a balance in the market mechanism and in outflow and inflow of foreign investment," Mr Prasarn said.
He said it is not necessary for the BoT to change its foreign exchange control policy, but it will closely watch the situation and will oversee exchange rates to ensure they stay at suitable levels appropriate to the economic situation.
"On concerns whether the strengthening baht is in line with the country's economic fundamentals, the BoT will need more time to watch developments. The strongest value of the baht occurred once on only day and its causes were clearly seen.
"The strong baht will not lead to any change in the central bank's policy because the current policy is good and flexible enough to deal with the situation," the governor said.
He refused to react when asked whether the central bank had made any intervention in the money market.
Narongchai Akkraseranee, a member of the monetary policy panel, confirmed the central bank had formally reported to his panel about the strong baht.
If the baht's rapid appreciation continues, an urgent meeting of the panel might be called. However, the current movements of the baht had not created any problem and the central bank was closely watching the situation, Mr Narongchai said.
Usara Wilaipit, a senior economist at Standard Chartered Bank, Bangkok office, said one main factor that led to the strong baht was foreign investors' confidence in the Thai currency.
The baht was stable while other currencies in the Asean region, and in Europe, had weakened over the past two weeks, Ms Usara said.
"There's a basic trend of fund inflows to the emerging markets with lots of liquidity provided by central banks in developed nations," said Tsutomu Soma, the fixed-income business unit department manager at Rakuten Securities Inc in Tokyo. "Countries like Thailand with a solid growth outlook are especially popular and attract more funds."
The baht strenghtened 0.1% to 29.61 per dollar as of Wednesday morning after reaching 29.55 earlier, the strongest level since August 2011, according to data compiled by Bloomberg. The currency has gained 3.3% this year, the biggest gain in Asian currencies.
Verachai Kunavichayanont, chairman of Thai Furniture Club, the Federation of Thai Industries, said local members were very worried about the strong baht, which could have a major effect on exports. Revenues would be affected.
"If the currency stays at 28 baht to the dollar for a time, export growth for furniture might fall to zero," Mr Verachai said.