IS THE BOT DOING TOO MUCH OR NOT ENOUGH?

Navaporn Panichpoolpoca is assistant vice-president in Bangkok Bank’s treasury division. As investors were returning to work after the New Year holidays, the Bank of Thailand was quietly stepping in to curb the baht’s strength.

The baht has been one of the best-performing emerging-market currencies recently, appreciating by almost 7% against the US dollar last year. In November, exports fell by 7.4% year-on-year and imports slid 13.8%, but the current account surplus widened to $3.38 billion. The country’s foreign reserves as of Jan 10 were up to $228.49 billion, compared with $222.96 billion as of Dec 27.

Since Thailand is an export-oriented country, exporters inevitably ask the Bank of Thailand to intervene when the baht appreciates, as the stronger baht makes exports more expensive. But the central bank’s hands have been tied because of fears that the US would put Thailand on its watch list as a currency manipulator.

The US government designates countries engaging in unfair currency practices to gain a trade advantage as currency manipulators. Unfair practices include having a bilateral trade surplus with the US in excess of $20 billion, a current account surplus of more than 2% of GDP and persistent one-sided currency interventions adding 2% to GDP over the last six to 12 months. These rules leave the Bank of Thailand with little room to manoeuvre. Last year the central bank set a record-low policy rate of 1.25% and imposed measures on capital inflows and outflows. Fortunately, Thailand once again avoided the manipulator tag this month, so the bank still has some flexibility. But will it be able to do enough? The answer is probably no, as the Bank of Thailand alone cannot solve the baht’s appreciation. Whichever way the currency goes, there will be winners and losers. Whether you are an importer or exporter, you are advised to manage your portfolio according to your risk preference and stay cautious in case Thailand ends up on a future list.