Hot-money inflow into bonds piques BoT curiosity

Hot-money inflow into bonds piques BoT curiosity

The massive offshore fund inflows spotted in the Thai bond market in February amid prospects of a firmer baht could trigger speculative activity or more benign use of Thai assets as a shelter from global fluctuation, says a senior Bank of Thailand official.

The baht has been regarded as a safe haven, but a stable currency can also attract speculators, said Don Nakornthab, senior director of the central bank's macroeconomic and monetary policy department.

"Hot money usually goes into the bond market ahead of the stock market," he said.

The baht yesterday weakened to 34.89 to the US dollar, down from Monday's four-month peak of 34.83. The local currency has risen 2.7% against the greenback this year.

"In February a high amount of capital flew into the Thai bond market, but some of the capital departed from the stock market," Mr Don said.

With a high current account surplus and foreign reserves, and an improvement in Thai economic fundamentals, the baht is considered a safe haven for foreign investors, he said.

The volatility rate of the baht was recorded at less than 3% as of Feb 22, considered one of the most stable in the region.

His comment echoed the recent words of central bank governor Veerathai Santiprabhob that Thailand's strong external front, as seen by high international reserves, was encouraging foreign investors to shift money back to the Thai capital and bond markets, at least in the short term.

Mr Don said it is possible for the Bank of Thailand to raise its economic growth forecast this year at the Monetary Policy Committee's meeting on March 29 following signs of recovery in exports and the tourism sector.

Tourist arrivals tallied 3.2 million in January, up 6.5% year-on-year and 6.9% month-on-month seasonally adjusted.

Mr Don said the Thai economy steadily expanded in January, mainly underpinned by the ramp-up in government expenditure and merchandise export value growth, which was in line with regional trends.

State spending remained the main engine of the Thai economy in January, with growth in current expenditure but a decline capital expenditure.

On a balance-of-payment basis, Thai merchandise exports numbered US$17.1 billion in January or 16.5 billion excluding gold, up 8.5% year-on-year or 6.2% excluding gold.

"The export recovery is expected to continue into the second quarter this year, supported by rising commodity prices and higher global demand," he said.

However, private investment remained a drag in January, while private consumption slowed slightly as expected with the government's tax break to spur spending ending, said Mr Don.

Private consumption indicators grew by 1.3% year-on-year in January, compared with a 2.9% increase in December, while month-on-month dipped 1.5% seasonally adjusted, it reported.

"In the coming months private consumption will be needed closely monitoring as many supporting factors haven't improved much, such as manufacturing income," he said.

Mr Don said even though Thailand's household debt is expected to decrease this year, the household leverage-to-GDP ratio remains high and pressures consumption.

In January, private investment indicators fell by 1.4% year-on-year or 0.2% month-on-month seasonally adjusted.

"Private investment also warrants close monitoring as it will be key in contributing to economic growth this year," he said.

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