Thailand’s central bank will take further steps to ease restrictions on capital outflows in coming months as it tries to curb the currency’s gains, Governor Veerathai Santiprabhob said.
The Bank of Thailand plans to increase the amount of proceeds exporters can hold overseas, liberalise foreign-currency deposit accounts and allow insurance companies to invest more abroad, Mr Veerathai said in an interview Wednesday at his Bangkok office.
The Bank of Thailand has been struggling to rein in the baht after it gained almost 6% against the dollar in the past year, making it the best performer among Asian currencies. The appreciation has hurt exports and curbed tourism, denting two key industries in the trade-reliant economy.
Mr Veerathai, 50, said the baht hadn’t been moving in line with economic fundamentals last year. While he said the central bank doesn’t have a specific level it targets, it wants to ensure the currency’s moves are more in sync with regional and other emerging-market peers.
“All in all, we think the baht has appreciated too much,” the governor said. “People might say it has been the best-performing currency, but in Thailand we’re not happy about it. When the baht is not moving in line with fundamentals of the economy, it should not be considered the best performer.”
The central bank already has taken several measures to counter the baht’s gains: it cut interest rates to a record low last year, imposed measures in July to counter short-term inflows, and in November relaxed rules to spur outflows.
Mr Veerathai outlined additional steps that will be taken:
-In the next 1-2 months, increase the amount of proceeds exporters can hold overseas to $1 million per lading bill, from the current $200,000 cap
-In the first half of the year, liberalize the foreign-currency deposit account framework so local companies can keep foreign currency in Thailand
-Relax rules so insurance companies can more easily invest abroad
The baht is seen as a relative safe haven, given Thailand’s substantial foreign exchange reserves and hefty current-account surplus. Mr Veerathai said structural factors contributing to the currency’s strength, like the current-account surplus, must be addressed.
He added that he expects capital flows to be “better balanced” this year because of plans by Thai companies to invest abroad, and a narrowing in the current-account surplus.
A member of Thailand’s monetary policy committee said Monday the central bank will aim to prevent the currency from strengthening beyond 30 to the dollar. Mr Veerathai said the committee member may have been speaking for himself, and didn’t represent the central bank’s view.
“The focus is more on looking at the movements, rather than at a fixed level,” Mr Veerathai said. If the baht is moving too fast or out of line with its peers, “then we would be very concerned about it.”
Monetary Policy
The governor said the central bank is taking a “data-dependent approach” to monetary policy, but will be ready to take further policy action if economic growth disappoints. The bank last month trimmed its 2020 growth forecast to 2.8%, compared with an estimated 2.5% for last year. Inflation remains well below the new 1%-3% annual target.
With the benchmark interest rate already at an all-time low of 1.25%, Mr Veerathai suggested the central bank could rely more on macroprudential steps going forward. Overall liquidity in the financial system is ample, but the bank would consider steps to deliver funds to small and medium enterprises, and to assist debt restructuring for troubled companies, he said.
“We have to look at more targeted policy instruments, making sure that liquidity gets transmitted to the sectors that need liquidity the most,” he said.
Mr Veerathai, whose five-year term is due to expire in September, was coy about whether he would seek to extend it. Only when the selection process for a new governor begins in March will he decide whether to throw his hat back in the ring, he said.