The Bank of Thailand has summoned foreign exchange dealers to meet on Thursday to discuss the baht's rapid gain, which it does not consider to be in line with the country's fragile economy.
The discussion could focus on the baht's reversal to a top performer in Asia from the weakest over the first four months, as well as gold trading that has been blamed for a portion of the baht's fast appreciation, Tak Bunnag, head of global markets group at Bank of Ayudhya, said after the bank accepted the invitation to meet.
"The baht's movement, which is inconsistent with economic conditions, could deal a blow to the economic recovery. The regulator may want to share information with foreign exchange traders to attempt to tame the baht's rise," he said.
An influx of foreign capital inflows followed a better than expected first quarter economic reading as well as Thailand's ability to contain the pandemic. This strengthened the baht versus the dollar, said Mr Tak. Investors are looking to Thai assets as a safe haven rather than for speculation.
The baht has risen 0.79% against the greenback since the beginning of this month, hitting 31.55 on Tuesday, the highest level in nearly three months. The currency gained 1.8% in May, the biggest monthly increase in 2020. Yet the baht, which was Asia's best performing currency last year, has dipped 5.2% year-to-date.
The rapid baht gain has become a worry for the central bank. Mathee Supapongse, deputy governor of the Bank of Thailand, said on Monday the baht's strength could hurt Thailand as it struggles to keep the economy afloat. The central bank stands ready to consider necessary steps to prevent the baht strength from aggravating fragility in the economy.
The economy is on the path to recession after shrinking 1.8% year-on-year in the first quarter, the deepest contraction since the flood-hit fourth quarter of 2011.
The central bank recently hinted it could further cut its economic growth forecast for this year as the economy is expected to sink more drastically than earlier projected. Its recent downgrade was a 5.3% contraction as the second quarter should post weak numbers before improving gradually in the second half.
Mr Mathee said the surge in gold prices played a role in pushing up the baht, so the central bank will examine gold dealers' transactions and whether they complied with regulations, as well as consider additional measures to curb the baht's rise.
Monetary Policy Committee secretary Titanun Mallikamas said the committee is scheduled to release its forecasts on economic growth, inflation and current account balance at the upcoming meeting on June 24.
Meanwhile, Kasikornbank's head of capital markets business Thiti Tantikulanan said offshore capital has been spotted flowing into Asian markets as investors shun the dollar. The improving economic prospects of Asia and current account surpluses in some countries are soliciting overseas fund inflows, including in the Thai bourse this week, he said.
"The baht is strengthening and it's the most volatile currency in the region," said Mr Thiti.
