Bank of Thailand Governor MR Pridi-yathorn Devakula yesterday said unpredictable capital flows would likely continue for the rest of the year but authorities were in a position to keep the situation under control.

"I'm afraid that capital movement this year will be more volatile than expected. It's an issue we have to deal with," he said.

Capital flows in the second half will be as capricious as in the first four months, with short-term funds streaming into the equity and bond markets rather than into investment projects, the central banker added.

In the first four months, US$9 billion (Bt343 billion) poured into the country, pushing the baht up faster than other units in the region. The currency was up by 8 per cent against the US dollar before it eased along with other regional units.

The appreciating baht has prompted exporters to complain about losing competitiveness. The Commerce Ministry will lower its export growth target for the whole year from the current 17.5 per cent.

The central bank was equipped to fight the fluctuating flow of funds, Pridiyathorn said. International reserves - $57.3 billion as of May 26 - were sufficient to support the flight of capital.

The Bank of Thailand could keep capital movements and baht appreciation on track, he said. It has been working with other central banks to follow the flux in global funds.

"The situation was quiet for a month but we continue to monitor the market, exchanging information with other central banks. The frightful situation is, in fact, outside the country," he said.

Capital is leaving the country because of currency trends rather than interest-rate spreads, he said.

Prasarn Trairatvorakul, president of Kasikornbank, said that if the central bank's policy rate were left unchanged at its meeting today, it would not drive capital out. Besides interest rates, capital flow also depends on foreign-exchange rates.

Usara Wilaipich, a senior economist of Standard Chartered Bank (Thai), said earlier that in the second half foreign investors were expected to de-emphasise the stock market here and raise the weighting of lower-risk home and external markets.

The size of the exodus will depend on commodity prices, the US dollar's value against the yen and the baht, and the economic slowdown here.

Stock analysts point to the dearth of positive news for the Thai bourse, which has been battered by negative internal and external factors including high oil prices, political uncertainty, US inflation and concerns about interest-rate hikes.

Pridiyathorn said the pace of foreign direct investment had been mild but should pick up after the general election when the political environment becomes clearer.

Anoma Srisukkasem

 The Nation