Thirachai backs BoT baht measures

Thirachai backs BoT baht measures

The central bank’s four-point plan to prevent profit speculation in the money market is the best way to deal with the appreciation of the baht, as opposed to cutting interest rates, former finance minister Thirachai Phuvanatnaranubala said on Wednesday.

Thirachai Phuvanatnaranubala (File photo)

Speaking at a forum on the strong baht and fiscal policy hosted by the Thai Journalists Association, Mr Thirachai said quantitative easing measures implemented by the US and Japan had driven capital to flow into high return-on-investment markets, including stocks, bonds and property, thus strengthening the baht.

The influx of capital into the bond market is cause for concern, he said, because foreign investment into this market is much as 78 billion baht per quarter, about one-fifth of the country's total lending system of 310 billion baht, Mr Thirachai said.

The ex-finance minister said the country has three options in dealing with the baht’s appreciation. The central bank could intervene in the markets, cut the repurchase rate, or curb the influx of foreign capital, he said.

But he warned that the first option could mean that the central bank faces a substantial loss, while the second could lead to a "bubble" in the markets.

The third option, which the central bank has already proposed to implement, is the safest, Mr Thirachai said.

The central bank will consider reducing its policy interest rate on May 29, if first-quarter economic data supports such a move.

Speaking at the same forum, former energy minister and ex-deputy finance minister Phichai Naripthaphan said the central bank should cut the policy rate.

Mr Phichai admitted that cutting the rate would not curb foreign capital inflow alone, but it would result in reduced costs for government infrastructure projects.

Kittiratt Na-Ranong (File photo)

Costs for the business sector would also be lower, which would boost the country’s economic development, he added.

The central bank last week submitted four proposals to deal with the strengthening baht to Finance Minister Kittiratt Na-Ranong.

The first measure suggests prohibiting foreign purchases of central bank bonds, or imposing a time limit on how long bonds must be held, to prevent short-term speculation. The Bank of Thailand has never enforced such a measure before.
The second option proposes banning foreign investors from buying Thai government or state enterprise bonds at three to six months’ maturity, also to prevent speculation.
The third measure suggests imposing a fee on foreign investors profiting from investing in bonds. The Finance Ministry would be required to amend the law to pave the way for the measure were it introduced.
The fourth suggestion proposes to compel foreign investors to hedge the exchange rate without receiving returns and risk. Such a measure has never been used by any country.

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