The Finance Ministry is set to impose fiscal measures to curb the baht's rise if the Bank of Thailand decides not to cut the policy rate, says Somchai Sujjapongse, director-general of the Fiscal Policy Office.
"If we cannot use interest rates as a tool, we need to find other measures to slow capital inflows," he said Monday.
The baht reached a 16-year high against the US dollar a few weeks ago, as a flood of capital inflows followed the Bank of Japan's aggressive asset-buying scheme aimed at beating deflation.
The baht has since weakened to hover around 29 on concerns that the state and the central bank will impose measures to curb the currency's gains.
The baht traded at 29.29/33 yesterday, slightly stronger than 29.33/39 on Friday.
Mr Somchai said the ministry is awaiting the central bank's ideas for reining the baht.
Asked about the possibility of imposing tax measures to slow capital inflows, Mr Somchai said such actions would be harsh but that the ministry will consider all options.
The central bank's Monetary Policy Committee (MPC) is set to meet on May 29, but committee members will meet central bank officials today for a regular meeting on the economic data published by the bank at the end of each month.
The rate-setting committee on April 3 kept the benchmark rate unchanged at 2.75% for a fourth straight meeting, citing concerns over rising household debt and strong credit growth.
Finance Minister Kittiratt Na-Ranong, central bank governor Prasarn Trairatvorakul and the National Economic and Social Development Board met last week to discuss the baht's movements.
Mr Kittiratt, also a deputy prime minister, said the participants agreed that the current policy rate is too high.
In related news, the private sector will submit a letter to the central bank and Finance Ministry today outlining seven measures to help cope with the strong baht.
The measures sought by the Federation of Thai Industries (FTI) include keeping the baht in line with other regional currencies, helping small and mid-sized enterprises (SMEs) form groups to apply for insurance against risk, and letting exporters open letters of credit in baht terms.
The FTI also wants funds set up to guide exporters to new markets and help SMEs affected by the stronger baht. Other measures include checks on capital inflows and higher rates for export tax refunds.
FTI secretary-general Tanit Sorat said the central bank governor responded to a previous letter by pointing out that policy interest rates must take into account many aspects such as inflation. "But he added that the BoT is not against the idea of lowering interest rates," said Mr Tanit, who is also acting FTI chairman.
Banluesak Pussarangsri, an executive vice-president of CIMB Thai Bank, said lowering the key rate by one percentage point might weaken the baht but would not solve the whole problem, while a two-point cut could cause a bubble in the property sector.
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Writer: Wichit Chantanusornsiri, Darana Chudasri & Nanchanok Wongsamuth