The Bank of Thailand is set to tighten foreign exchange monitoring to prevent short-term baht speculation after the local currency surged to its highest level in more than six years yesterday.
The central bank will take a stricter approach in tracking transactions suspected of parking short-term money in the country for speculative purposes, said Vachira Arromdee, assistant governor overseeing financial markets operations.
Speculating in the baht for short-term gain is undesirable behaviour, Ms Vachira said.
The baht yesterday rallied past the 31-mark to its strongest level against the US dollar in more than six years. Thailand's currency unit traded at 30.95, up from the previous day's 31.19.
It emerged as the best-performing currency in Asia, gaining 4.8% year-to-date against the dollar. The Japanese yen came second with a 1.8% rise.
If the baht continues to gain at a higher and faster pace than currencies of trade competitors, the trend does not seem to be in line with Thailand’s economic fundamentals and this would deal a blow to the real sector and operators adaptability, Ms Vachira said.
The private sector is advised to regularly hedge against foreign exchange fluctuation, while it is a good time for borrowers to pay foreign currency-denominated debt, she said.
Krungthai Bank chief markets strategist Jitipol Puksamatanan said that the Fed's signal adds optimism for investors and prompts more offshore capital to channel into Thai equities and bonds.
Bullish sentiment of the baht is expected to continue until the G20 summit ends as investors are betting that the US-China talks will help ease the trade spat, Mr Jitipol said.
"The baht's strength is, however, too fast and the trend is likely to reverse in the future," he said.
Investors will also focus on the Bank of Thailand's rate-setting panel meeting slated next Wednesday to take a cue as to whether it will join the global easing trend, he said.