A further reduction in Thailand’s benchmark interest rate won’t help much in efforts to restrain the baht, says a member of the Monetary Policy Committee.
While a rate cut may reduce capital flows into financial markets, foreign tourism receipts are the main driver of the currency, Kanit Sangsubhan, one of seven members of the Bank of Thailand panel, said in an interview on Thursday.
“Baht strength is a concern for everyone, including the Bank of Thailand,” he said. “The central bank has informed the government that it’s a problem and the government should help.”
Mr Kanit is the secretary-general of the EEC Office.
The baht reached a six-year high on Friday at 30.18 to the dollar. Its jump of about 7.8% in 2019 is the second-best in emerging markets. The currency has climbed despite central bank steps such as curbs on speculative inflows and a policy rate cut in August.
“The baht has been strengthening because the impact of the US-China trade war on Thailand is minimal, and the current-account surplus is high due to inbound tourism,“ Mr Kanit said.
He declined to comment on whether there’s scope to cut borrowing costs at the next policy meeting on Nov 6.
The central bank is in charge of restraining the currency, Deputy Prime Minister Somkid Jatusripitak told reporters on Friday.
“The government can’t step in to interfere,” he said. “We’ll let the Bank of Thailand take care of this.”
Thailand’s economy relies on exports as well as tourism receipts. Both drivers have been dented by the global slowdown and baht appreciation, putting the nation on course for its weakest expansion in five years in 2019.
Mr Kanit said a 224-billion-baht high-speed railway project that he helps to oversee for the government is the kind of initiative that could assist in addressing the currency challenge.
“Importing content relating to high-speed rail will be worth 30% to 40% of the project cost, and could help curb the baht,” he said.
Earlier in October, the BoT said it plans to relax rules on capital outflows in coming weeks to help tackle baht appreciation.
The MPC has said it periodically steps into the foreign-exchange market to curb excessive baht swings. But its scope for aggressive intervention is limited by US oversight of the currency policies of trading partners.