InfoQuest, (July 17, 2019) - Due to the strong Thai baht over the past months, BOT revised relevant regulations on curbing speculation in the currency and kept a tighter rein on foreign investors' reporting their investment activities in domestic debt market, according to Mr. Wirathai Santiprapop, governor of the Bank of Thailand (BOT). Thai baht's stronger level than other ASEAN currencies comes amid the persistence of high current account surplus internally and the Fed's expected interest rate cut externally.
"With a view to minimizing the disturbance of capital inflow into Thailand, BOT issued the above measures as it seeks to help reduce the impact on the currency ... the rapid inflow and outflow of capital within 2-3 days has resulted in the rapid appreciation of the Thai baht. At the moment, things are changing in the emerging market where the currency starts to depreciate. However, the Thai baht has not depreciated as fast as other currencies, because this currency has been viewed as a safe haven given Thailand's sufficient buffer zones," Mr. Wirathai Santiprapop said.
Admitting that the above measures indeed sent a strong warning to foreign investors to be more cautious when transferring capital to Thailand, the governor revealed that the Thai baht depreciated immediately the first day after the implementation of the above measures, and expected they can effectively reduce the impact of capital inflow in the long term.
Mr Thitnant Mullika, secretary of the Monetary Policy Committee (MPC), also detailed the external and internal factors causing the rapid appreciation of baht over the past over a month.
Externally, central banks of many foreign countries eased their monetary stance out of consideration for the sentiment of emerging countries including Thailand, thus fueling capital inflow into this country. Internally, the persistence of high current account surplus, the domestic political stability, and the favorable fundamentals of baht make foreign investors view Thai baht as a regional safe heaven, MSCI increase its weight in Thai stocks and JP Morgan increase its weight in Thai government bonds.
BOT will continue to keep close watch on Thai baht. However, as America imposes more rigorous standards for assessing countries that manipulate the exchange rate, Thailand may be subject to being declared a currency manipulator. Recently, BOT revised relevant regulations on curbing speculation in the baht, and strengthened supervision on the reporting of foreign investors of their investment activities in domestic debt market. As per the revised regulations, the daily balance of a Non-resident Baht Account (NRBA) shall be reduced from 300 million to 200 million Thai baht, and foreigners investing in the Thai bond market shall provide the name of the Ultimate Beneficiary Owners in their information report.
With regard to interest rate, MPC holds that Thailand's current real interest rate is still relatively low compared with other ASEAN countries, so lowering the policy interest rate should not have much impact. Meanwhile, it also believes that the current policy interest rate of 1.75 percent is conducive to spurring economic growth and also conforms to the inflation targeting framework.
Source: InfoQuest, by Kasamarporn Kittisamphan / Rachada / Wilawan, translated by Xinhua Silk Road
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