The central bank says it will step up oversight after the baht climbed to a four-year high against the US dollar
Local currency strengthens to four-year high as US dollar continues slump
The Bank of Thailand will step up its oversight of the baht and fund flow movements after the local currency climbed to a four-year high against the US dollar.
“We’re ready to review additional measures if the currency moves irregularly,” said central bank governor Veerathai Santiprabhob.
He said the sharp dollar slump has strengthened currencies in Asia, including the baht, at a rapid clip. The Bank of Thailand is worried that if the baht continues to rise quickly, it could deal a blow to the economy.
The baht rose to a four-year high against the greenback of 31.35 yesterday, making it the second-biggest gainer in Asia this year after the Malaysian ringgit, which has surged 4.4%. The Thai currency has advanced 3.9% versus the dollar this year, compared with a 9-10% gain last year.
The central bank announced last week a further relaxing of regulations governing capital outflows by increasing the cap for money transfer agents to send money overseas to 800,000 baht a day per customer, up from 200,000 baht, with retroactive effect from Jan 12, 2018.
Foreign reserves, a figure that suggests the central bank’s possible intervention in foreign exchange markets, leapt to US$209 billion as of Jan 19, 2018 from $203 billion as of Dec 29 last year and $171.9 billion in 2016.
Mr Veerathai said the central bank is monitoring financial institutions and found that they could be involved in baht speculation because of heavy transaction volume. Such practices have been done in favour of customers who may be speculating in baht, he said.
Given that the dollar’s retreat is pushing up the baht’s value, local business operators who have exposure in outbound shipments as well as exporters should hedge against foreign currency risks, Mr Veerathai said.
Quoting prices in local currencies is another method to fend off the effects of dollar volatility. Thai exports to the US represent 10-11% of the country’s export volume.
Prasarn Trairatvorakul, a former central bank governor, said the baht’s strength could be attributed to the dollar’s movement, an external factor, and Thailand’s high current account surplus.
But the dollar is likely to fluctuate up and down, so investors must be cautious if they want to speculate on the baht, he said.
Chantavarn Sucharitakul, assistant governor for corporate strategy and relations at the Bank of Thailand, recently said the central bank had intervened periodically when the baht’s strength was detrimental to the country’s economy, in order to alleviate the effects on business operators.
The central bank’s intervention was not aimed at making Thailand gain a trade advantage against other countries or resisting market forces, she said, but rather to help the private sector adjust. Thailand’s current account surplus and capital flow to portfolio investment also contributed to the baht’s rise, Ms Chantavarn said.
The Thai Bond Market Association earlier this week said foreign fund inflows to the Thai bond market amounted to 79 billion baht, with half the sum invested in short-term bonds to speculate on baht appreciation.