Baht continues to gain

The baht continued to gain strength on Wednesday, as policy makers said they would take steps to rein in the Thai currency if necessary

The market expected currencies of most emerging economies to be under significant pressure to appreciate as the US Fed, Bank of Japan and the European Central Bank were likely to keep pumping in new liquidity to prop up their economies in foreaseeable future. 

Kobsidthi Silapachai, Kasikorn Bank’s Head of Capital Market Research, said investment funds’ actions of seeking gains from currency changes and interest rate differential in short-term bonds in the domestic market every Tuesday had been a big factor pushing the baht up in recently.

Therefore, the central bank might address the capital inflow by reducing the attractiveness of this channel.

The Bank of Thailand is the major issuer of such short-term bonds, which it uses to absorb liquidity injected from market intervention transactions.

The BoT's Monetary Policy Committee’s meeting on April 3 meeting showed that majority of its members were not inclined to reduce the policy interest rate from 2.75% as a means to slow the baht's rise.

There is a high correlation between foreign investors’ bidding in the central bank’s bond auction and the baht's  appreciation, Mr Kobsidthi said.

“Hedge funds have little risk in subscribing to such short-term bonds. They would receive the profit from the central bank in a short period when the bonds are due, without having to sell in the secondary market.

"The central bank should lengthen the maturity of the bonds, or create other means to control the money base.”

Dividend payment of local listed firms and persistent uncertainty in the  eurozone’s banking crisis could delay the baht's appreciation in the near future.

Mr Kobsidthi expected the baht to be around 28.5 to a US dollar by the year's end.

Mr Kobsidthi said he expected the United States central bank to continue pumping in money in the forseeable future, given bleak non-farm employment. THis shoud be taken into account with increasing upward pressure on the baht, aside from the Bank of Japan’s aggressive move to weaken the yen.

Chantavarn Sucharitakul, a central bank assistant governor, said the baht's strengthening was partly the result of  investors catching up from 2012, when the baht appreciated by 3% against the dollar - less than other regional currencies. The Korean won rose by  6% to 7%.

There had been strong demand for foreign currency in the economy, which help to ease the appreciation of the baht.

"The baht volatility is around 5% year-to-date, more than previously; and stands in the middle range of that of regional currencies. That the baht has moved in a two-way direction is a reason for the increase in the baht's volatility," she said.

Ms Chantavan said that the baht strengthened by 2.5% against the dollar over the past month, the fourth best performer, following Iceland's krona, which appreciated 6.7%, and Mexico's peso 4%.

She said regional countries have different economic situations, resulting in diverging direction of their currency movements this year.

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Writer: Parista Yuthamanop
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