Apisak sees BoT action on baht speculation

Limiting short-dated bonds just first step

The Bank of Thailand’s latest measure to taper its short-dated bond issuance this month by 80 billion baht is only one of a series of measures being prepared to curb baht speculation and blunt the local currency’s rally, says Finance Minister Apisak Tantivorawong.

“The Bank of Thailand must take several measures, not just one. There are many measures, but the central bank cannot disclose them all to the public,” he said.

His comment came after the central bank said it will shave its new weekly supply of three- and six-month bonds by 10 billion baht each, from 40 billion issued weekly in March, constituting a total reduction of 80 billion, to prevent their use for currency speculation.

The baht is among the best-performing currencies this year, rising 4% against the US dollar. The rapid gain in the baht began mid-March after the US Federal Reserve stepped back from its hawkish stance on future rate hikes and US President Donald Trump’s healthcare bill failed as investors perceived the baht as a safe-haven currencies based on the country’s high current account surplus and foreign reserves.

Since mid-March, the baht appreciated 3% against the greenback. The baht yesterday extended its gain to 34.25 to the dollar, the strongest levels since July 2015.

Mr Apisak allayed the jitters, saying offshore funds flowing into Thailand are not significant and the Bank of Thailand is monitoring the situation.

Thailand has run a current account surplus the past two years as investment has been tepid and purchases of machinery minimal. As of February, Thailand has a US$10.7 billion current account surplus, with the central bank recently raising its forecast for Thailand’s 2017 current account surplus to $36.9 billion from $26.9 billion estimated in December.

Vachira Arromdee, the Bank of Thailand’s assistant governor for the financial markets operations group, said the reduction of short-dated bond issuance is one measure to discourage foreign investors from parking their money in Thailand for the short run.

However, it is too early to evaluate the measure’s effectiveness, she said, adding baht movement depends on several factors, overseas in particular. The central bank will assess the situation before implementing any measures, Ms Vachira said.

Ariya Tiranaprakit, executive vice-president of the Thai Bond Market Association, said most of the funds flowing into the bond market in March were parked in long-term notes and the amount was not significant for speculation purposes.

Offshore funds reversed to flow into Thai bonds, with net purchases of 27 billion baht from March 20 to 31, of which 26.5 billion was put into long-dated bonds. From March 1-17, foreigners yanked 31 billion out of the Thai bond market.

Net offshore fund inflows to the Thai bond market tallied 62 billion baht for the three months to March, down from 93.5 billion year-on-year, she said.

In related news, Mr Apisak said Thailand would not be the main US target in its crackdown on countries that have chronic goods trade surpluses with the world’s largest economy as it runs only a small trade surplus with the US.

If the US does impose trade measures on Thailand, it could affect clothing and electronics products, he said. But the electronics goods are mostly produced by American companies located in Thailand.

Mr Apisak said if the US imposes trade barriers against China, Thailand’s largest trade partner, it would not seriously affect Thailand as rubber is its major export to China, which it uses to make tyres for domestic use. He believes the US will not adopt harsh measures for countries with trade surpluses as US industries are unlikely to pick up their production.