The Bank of Thailand says it has many tools left to manage capital inflows and curb the local currency's strength, which is hurting growth prospects in the Southeast Asian economy.
The scope and speed of the baht's appreciation is out of line with economic fundamentals such as the current account surplus, said Don Nakornthab, a senior director in the central bank's economic and policy department.
What monetary policymakers have done so far are "baby steps", he said Monday in his office in Bangkok.
"On capital inflow measures, I think they have a lot of options," Mr Don said, pointing to measures that some countries have used, such as holding periods, to curb hot money flows.
The central bank in July imposed measures to counter short-term inflows and last month relaxed rules to spur outflows. The baht has climbed more than 8% against the dollar in the past 12 months, hurting exports and tourism and putting the economy on course for the slowest annual growth in five years.
The monetary authority has said it will review the relaxation of rules governing outflows every three months.
"There are some ceilings on certain limits, and they could be lifted," he said.
Bank of Thailand governor Veerathai Santiprabhob last month indicated scope for another interest rate cut if economic growth disappoints. The policy rate has been lowered twice this year to 1.25%, matching a record low.
LOWER BOUND
At the same time, Mr Veerathai has cautioned against taking the benchmark interest rate below zero.
Mr Don said the effective lower bound of the policy rate will depend mostly on how much can be transmitted into the economy.
Commercial banks aren't allowed to offer negative rates, he said. They also have to pay a contribution of 0.46% of deposits to a bailout vehicle, the Financial Institutions Development Fund (FIDF).
"If a bank gets stuck with 0.5%, then 0.5% will be the lower bound from the FIDF standpoint," Mr Don said. "If the bank can't follow through, it doesn't matter how much we lower the interest rate, the transmission will not go through."
If there was a big upheaval like the global financial crisis, the contribution to the bailout fund would probably have to be removed to allow for large rate cuts, but such a scenario is a tail-end risk only, he said.
"Some ammunition is needed for large negative shocks," Mr Don said.
The central bank will lower its economic growth projections for 2019 and 2020, he said. While this year is likely to be a low point for the economy, the Monetary Policy Committee was told in November that sub-3% expansion is a possibility in 2020, Mr Don said.
"We still expect next year to be better than this year, but perhaps not much better," he said.