Published on January 18, 2006

The direction of the baht will be influenced more by the health of the United State’s economy and the value of the dollar rather

than local conditions, accor-

ding to Naris Chaiyasoot, director-general of the Fiscal Policy Office.

One domestic factor that will definitely affect the Thai currency, however, is the Bank of Thailand’s ability to tackle inflation, he said.

The recent strengthening of the baht was the result of a weakening dollar after many investors grew less confident about the strength of the US economy, said Naris.

According to a report by Naris’ office, the baht appreciated 3.7 per cent between December 30 and January 13.

It was a relatively small rise and he said that a slightly stronger baht should not pose any problems.

“The baht was just one of many regional currencies that rose against the dollar. As such, Thailand’s export competitiveness should not be affected,” Naris said.

Other regional currencies also rose against the dollar.

The South Korean won gained by 2 per cent during the same period; the Indonesian rupiah, 4.5 per cent; and the Taiwanese dollar, 2.6 per cent.

Moreover, China’s Central Bank announced it was diverting a portion of its reserves away from US assets, said Naris.

Persistent trade and current account deficits have also eroded confidence among some investors about the strength of the US economy.

The combined factors triggered an influx of capital into Thailand’s stock market.

In the first half of this month Bt55 billion flowed into the Thai bourse, compared with Bt118 billion during the whole of last year.

A recovering economy and the relatively low price-to-earnings ratio of local stocks also attracted investors to plough cash into the local bourse.

The baht’s recent appreciation will not greatly reduce prices of imports and will only ease inflationary pressure by 0.3 percentage points, he said.

His statement implied that the central bank might raise the policy rate again to curb inflation, although a hike might boost the currency’s value.

Asked if exchange rates would be more volatile this year, Naris said that would depend on how the US economy performs.

The Monetary Policy Committee (MPC) will today decide whether to raise 14-day repurchase rate.

The market expects the panel to raise the rate by 25 basis points to 4.25 per cent.

The Fiscal Policy Office may also release more information in its monthly economic report to the public.

The office plans to provide a thorough analysis of each industry when it makes monthly reports about imports and exports.

Currently its report focuses on tax collections and the overall fiscal situation.

Wichit Chaitrong

The Nation

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