The Bank of Thailand has liberalised foreign currency deposits and increased the investment limit in foreign securities for individuals to US$5 million (165 million baht) per year from US$200,000 as part of efforts to curb the rapid appreciation of the baht and forge a new foreign exchange ecosystem.
The baht has appreciated rapidly following risk-on sentiment on the back of the US presidential election outcome and progress in Covid-19 vaccine development.
Vachira Arromdee, the central bank's assistant governor for financial markets operations group, said yesterday that the measures are to accommodate renewed inflows into emerging market economies, including Thailand's, after recent events induced risk-on sentiment in investment appetite.
The rapid appreciation of the baht may affect the fragile recovery of the Thai economy, and the Bank of Thailand is closely monitoring and intervening in the market as necessary to limit excessive currency volatility, according to Ms Vachira.
To further mitigate pressure on the currency and to address structural issues in the Thai foreign exchange market, the central bank has also implemented three additional measures.
The first allows residents to freely deposit funds in foreign currency deposit (FCD) accounts in Thailand and allow free fund transfers between them.
This will enable exporters to effectively manage liquidity and foreign exchange risk, she said.
The second measure relaxes regulations regarding investments in foreign securities.
Under the scheme, retail investors are allowed to invest up to $5 million per year from a previous limit of US$200,000.
There is no investment limit via local financial institutions such as brokerage firms and asset management companies.
In addition, this measure removes previous investment limits in foreign assets for investors regulated under the Securities Exchange Commission (SEC) and allows the listing in Thailand of foreign securities such as Exchange Traded Funds (ETFs).
The last measure is that investors are required to complete a registration process prior to investing in Thai debt securities, known as Bond Pre-Trade registration.
Pre-registration will upgrade the bond surveillance system which will allow close monitoring of investor behaviour and thereby enable the implementation of targeted measures in a timely manner.
Similar measures have also been adopted in South Korea, Malaysia, and Taiwan.
Ms Vachira said Thailand has continuously registered huge current account surpluses over the past few years due to an influx of foreign tourist receipts, while outbound investments by Thai companies have been minimal.
This has resulted in an imbalance of capital flows in Thailand, said Ms Vachira.
"An imbalance of capital flows, the inconvenience for business operators in hedging against [foreign exchange] risks and how external parties have an effect on the baht's movement are three main structural issues that we want to address," she said.
The roll-out of these measures is part of the central bank's efforts to push forward a new foreign exchange ecosystem in Thailand to address structural issues, she said.