Central bank plans steps to curb strong baht

Central bank plans steps to curb strong baht

Foreign exchange measures in pipeline

Cars pass a skytrain construction site in Bangkok on May 13 last year. (Reuters photo)
Cars pass a skytrain construction site in Bangkok on May 13 last year. (Reuters photo)

Thailand is not in recession but growing below potential and the central bank is ready to take action if needed, while there are also plans for further measures to curb the baht's strength, central bank and government officials said on Thursday.

The policy committee is "very concerned" about the strength of the baht and will further relax rules on capital outflows within 1-2 months, Bank of Thailand governor Veerathai Santiprabhob told reporters and analysts.

Thai investors would be allowed to invest more abroad and exporters to keep foreign currencies overseas for longer, the governor had told Reuters in an interview last week. Exporters are now allowed to keep funds abroad for a year.

The central bank will ensure gold trading flows will not affect foreign exchange rates, given large gold investments in Thailand, Mr Veerathai said. The governor was speaking at an analyst meeting held at the central bank.

Gold exporters may not need to rush to bring in foreign currencies, he said, "but it's not a ban on gold trading".

There are plans to reduce the country's large current account surplus via cooperation with state agencies to speed up investment in infrastructure projects as planned, which will also help the country's economic restructuring, he said.

In January-August, current account surplus totalled $25 billion and is expected to reach $34 billion this year, or 6.3% of gross domestic product (GDP), compared with last year's 11.5% of GDP, Mr Veerathai said.

The baht is Asia's best-performing currency so far this year, up 7.5% against the dollar, driven by Thailand's hefty current account surplus and foreign fund inflows.

The baht's strength has affected exporters and tourism but the BOT will closely monitor the currency to prevent it from rising too fast, Veerathai said.

The Bank of Thailand left its policy rate unchanged at 1.50% last month, after August's surprise cut. But it downgraded its 2019 GDP growth forecast to 2.8% from 3.3%. Last year's growth was 4.1%

The economy is not in a "recession or crisis", Mr Veerathai said, saying Thailand did not have to cut rates as many times as other countries because its policy rate was almost the lowest among emerging markets and it did not have problems with its external position.

However, deputy central bank governor Mathee Supapongse said the central bank was still able to make use of existing policy space if needed, and monetary policy is still data-dependent.

"It's not necessary that the policy rate can't go lower than 1.25%, which is the record low," he said. "The 1.25% is not a magic number".

The Bank of Thailand will next review monetary policy on Nov 6.

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