The Bank of Thailand has expressed concerns over the baht's ferocious surge prompted by the Bank of Japan (BoJ)'s unexpected aggressive liquidity pumping.
But governor Prasarn Trairatvorakul said the central bank is adopting a wait-and-see approach, adding that it will assess the market after the long Songkran holiday to consider if it was necessary to start reining in the baht.
"We are concerned about the baht's movement, which has been relatively faster than before. We will continue to monitor it closely and cautiously consider taking measures," he said.
The BoJ last week commenced its new "quantitative and qualitative easing" measures by ramping up asset purchases to twice that of its money base by 2014, or 7 trillion yen per month, instead of the old plan which is due next year.
The new plan includes the BoJ's purchase of higher-risk asset classes such as mutual funds, rather than restricting itself to government bonds.
The baht broke a testing level of 29 baht but eased back to 29.03/05 at 6pm yesterday.
Mr Prasarn said demand for the baht soared after the Thai market opened for the first day yesterday after the BoJ commenced its new measure, partly due to investors reallocating from yen-denominated assets in the wake of its weakening trend.
The one less work day this week and next week's long Songkran holiday resulted in lower demand for foreign currency from importers.
Mr Prasarn said foreign investors' settlement for reservation of BTS infrastructure funds worth 20 billion baht was another factor pushing the baht up yesterday.
He said the central bank was ready to intervene in the foreign exchange market by selling the baht if its movement breached fundamentals. Its tool kit also includes measures to restrict foreign capital inflows.
The central bank has allowed market mechanisms to prevent the baht from excessively appreciating so far. But it expects greater demand for investment import and foreign debt repayment by state enterprises and government agencies to counteract the capital flows.
"The selling of foreign currency for the baht jumped to $300-400 million from $200 million per day [April 9], while the demand for it is thin because of the upcoming holiday," Mr Prasarn said. "We will reassess the situation again after the holidays. Latin American currencies soared yesterday in response to the BoJ's move, but it has returned to normalcy now."
The country's relatively more attractive economic fundamentals and confidence have made local assets the most promising for investors looking for a better yield than their domicile countries. The Malaysian ringgit, Indonesian rupee and Singaporean dollar all face uncertainty, he said.
Usara Wilaipich, senior economist with Standard Chartered Bank, expressed great concern over the impact of the BoJ's move on the baht, saying the currency's rapid appreciation could exceed fundamentals and threaten stability if the baht is overvalued.
"Size does matter. The BoJ's movement this time will drive an exodus of yen from Japan looking for yields elsewhere. And in Asia, Thailand is investors' top choice," she said. "While I agree with the BoT's stance on encouraging outflows and imports, the question is whether the timing corresponds with the looming wave of inflows."
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- Writer: Parista Yuthamanop