Finance Minister Kittiratt Na-Ranong says he has ruled out immediate measures to curb the rising baht after a special economic meeting on Friday.
He said measures had been prepared, but would be implemented only if further gains in the currency were recorded.
Exporters had been widely expecting an immediate response to curb the rapidly appreciating currency prior to Friday's meeting.
Kittiratt Na-Ranong (Bloomberg Photo)
Mr Kittiratt, also a deputy prime minister, said the meeting between the Finance Ministry, the Bank of Thailand (BoT) and the National Economic and Social Development Board agreed the current policy rate is too high.
If the interest rate is not brought down soon, then it would attract more foreign capital inflows, pushing the baht even higher, he said.
Before the meeting yesterday, exporters called for an urgent cut in the central bank's policy rate, which currently stands at 2.75% per annum.
Mr Kittiratt said he would prefer to see the benchmark rate slashed by as much as one percentage point.
Some economists warned that a reduction in interest rates could spur inflation. This would cause long-term economic damage, as it is more difficult to tackle inflation than address the impact of a strong baht, they said.
The BoT is believed to be favouring moves that would keep the inflation rate under control.
But the central bank failed to convince the other two agencies of the economic risks of a policy rate cut at yesterday's meeting, the finance minister said.
Mr Kittiratt said the meeting asked the central bank to review its stance and thoroughly consider the benefits and risks of a rate cut at the next meeting of its Monetary Policy Committee (MPC), which is scheduled for late next month.
"Everyone [attending the meeting yesterday] agreed in principle that a reduction of the policy interest rate would reduce incentives for foreign capital inflows to the bond market. But the authorities will consider both the advantages and disadvantages of a rate cut," Mr Kittiratt said.
"The central bank governor has agreed to discuss the matter of the interest rate cuts at the MPC meeting. The governor and the two deputy governors are members of the MPC. The four experts on the MPC will be left to make their own judgment."
Mr Kittiratt said in striking a balance for the economy, the authorities would consider the baht value versus the currencies of trading partners and competitors, not just against the dollar.
The MPC's statement after its last meeting said that financial imbalances manifested in bank credit growth, household debt and asset prices caused by the low interest rate topped their concerns, with a 5-to-1 vote to maintain the policy interest rate.
The government has already prepared measures to control foreign capital inflows and would implement them if the MPC decides to maintain the policy rate, Mr Kittiratt said.
The local currency has gradually appreciated since late last year due to huge foreign capital inflows which are a result of money injections by economic superpowers, particularly the United States and Japan.
As a result, the baht has appreciated from 31 to the dollar to 29 baht, or more than 6%, making it the strongest performing currency in the region.
Meanwhile, the finance minister's comments caused the baht to fall slightly late yesterday.
"Investors are at ease as Mr Kittiratt's comments indicate that the government and the central bank will not implement any measures as long as the baht does not rise above the 28-baht level," a broker at a local investment bank said.