The Bank of Thailand said on Saturday that it has been in the foreign-exchange market to reduce volatility in the baht, which is hovering at 16-year lows against the dollar.
The baht has fallen by 11.7% against the US dollar this year, which the central bank says had been driven by dollar strength.
However, the weighted baht index against other currencies has been stable, while the country’s external position and banking system remain strong, deputy governor Mathee Supapongse told reporters on Saturday.
The weighted-average Interbank Exchange Rate as of the close of business on Friday was 37.915 baht, according to the central bank website.
“We’ve entered the market sometimes to slow down volatility (in the baht),” Mr Mathee said, adding that the BoT had no target for baht levels.
A fall in the country’s international reserves was not because of currency intervention but rather asset valuations, he said.
Despite wide Thai-US rate differentials, Thailand has attracted capital inflows, he added.
Foreign investors have bought 150 billion baht worth of Thai shares so far this year but sold 33 billion baht of bonds.
Central bank governor Sethaput Suthiwartnarueput reiterated his view that gradual and measured policy tightening was suitable to support the country’s still slow economic recovery, but he was ready to adjust if needed.
On Wednesday, the BoT raised its key interest rate by a quarter point to 1.00% to tame 14-year high inflation. Some economists have said that is not sufficient to tame consumer price inflation that tops 7% and to steady the baht.
But the need for financial stability, one of the three main objectives of the BoT, is keeping monetary policy makers from raising interest rates too fast, said Mr Mathee.
While trends in economic growth and inflation may support the case for a faster monetary policy normalisation, doing so would unhinge financial stability, he said.
“We can’t raise rates hard and fast as we need to balance the three objectives,” he said, adding that the central bank needs to think about those indebted sensitive groups that will suffer from higher rates.
As well, he said, the Thai economy is still not back to pre-Covid levels and inflation will likely ease going forward.
“The Thai policy response is different from other countries as we want to ensure a smooth take-off,” Mr Sethaput said, as Thai inflation has not been demand-driven like that in the US.
He also flagged the need to bring down Thailand’s household debt levels to below 80% of gross domestic product — the level prescribed by the Bank for International Settlements — from the current close to 90%.
The high household debt will likely obstruct economic recovery, he said.
The central bank expects economic growth of 3.3% this year, the slowest in Southeast Asia. Growth next year is expected to improve slightly to 3.8%, although lower than the 4.2% forecast previously. It sees headline inflation averaging 6.3% this year, and falling back within target to 2.6% next year.