BoT shoots down capital control talk

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BoT shoots down capital control talk 
Bangkok Post: 16 Sep 2010
Central bank governor shoots down capital control rumours


The Bank of Thailand is unlikely to impose measures to block capital inflows in a bid to curb the appreciation of the baht, says central bank governor Tarisa Watanagase.

Her comments quashed market speculation that the central bank could look to impose capital controls on the baht, which has risen 8% for the year to date against the dollar and is currently trading at a 13-year high. It closed yesterday at 30.81/86 to the US dollar, compared with 30.79/82 on Tuesday.

Dr Tarisa, who retires from the central bank at the end of this month, said regulators would continue to use existing measures, including dollar purchases in the market, to prevent excessive volatility in the exchange rate.

"The baht's appreciation has resulted from both internal and external factors. Externally, it has stemmed from the strong economic growth of the region in contrast with weak growth in developed countries," she said.

"Internally, capital inflows have increased after local [political] unrest [in the second quarter] caused markets to underperform. Our foreign exchange policy has remained unchanged."

The baht's strength has come as the Stock Exchange of Thailand has been one of the top performing markets in the region this year with a gain of 25% since January. The SET index closed yesterday at 921.1 points, down 0.29, in heavy trade worth 41.25 billion baht.

Fears that the central bank could reimpose a reserve requirement on capital inflows dampened investor sentiment recently. Regulators in December 2006 shocked the markets by imposing a 30% unremunerated reserve requirement on inflows to help stem speculative inflows.

In any case, gains by the currency raised worries among business leaders and policymakers about the potential impact on exporters, particularly small and medium-sized companies with low import content or resources to hedge their currency risk.

Frederic Neumann, a senior Asia economist at HSBC, said that "special measures" to address the appreciation of the baht were not needed right now as the currency continued to move in line with regional currencies, mitigating any impact on trade competitiveness.

"Some regional currencies, like the Malaysian ringgit and Singapore dollar, have appreciated quite a bit. Year-to-date, the baht may be stronger, but it was not the best performer last year. The pace of the baht's appreciation is still reasonable," he said.

Mr Neumann said a key difference from late 2006 was the fact that the baht's appreciation then was well outpacing that of other currencies.

In any case, a rise in consumption could help spur imports and ease pressure on the baht.

"I don't think the Bank of Thailand needs to move beyond foreign exchange intervention right now. Currency appreciation is a regional phenomenon. Thailand is running a comfortable trade surplus," Mr Neumann said.

M.R. Chatumongol Sonakul, the chairman of the Bank of Thailand board, said the central bank should focus on the management of its foreign exchange reserves to minimise losses from bond issuance.

Foreign reserves stood at an all-time high of $157.1 billion as of Sept 3, compared with $138.4 billion at the end of 2009, reflecting the scale of intervention taken this year by the central bank to restrain the appreciation of the baht.

"The central bank's role should be to aid the private sector to do businesses," he said. "It should not fix the baht at a particular level. It is better to let the baht adjust flexibly. What we should consider is how to manage the official reserves."

Thanyalak V. Surapol, an economist at Kasikorn Research Center, said market speculation on the baht measure could return in the future, as money is expected to continue to shift to the region in light of economic problems in the US.

http://www.bangkokpost.com/business/economics/196488/central-bank-governor-shoots-down-capital-control-rumours