Thanong said early yesterday that the baht should not appreciate more than 3 to 3.5 per cent each year, a rate that would allow businesses to adapt comfortably to exchange-rate movements.

He said the appropriate dollar level for this year was between Bt37.50 and Bt38.00, while for next year it should be about Bt37.50.

Pridiyathorn said Thanong's forecast should be more accurate than earlier forecasts by some economists that the baht may strengthen to Bt36.50 to the dollar by the end of the year.

The BOT governor also said that rising international reserves were due mainly to the central bank's intervention in the currency market, rather than the performance of the government.

The intensity of recent capital inflow is proving a headache for both the central bank and the Finance Ministry as they try to find a way to prevent further appreciation of the baht.

Ampon Kittiampon, secretary-general of the National Economic and Social Development Board (NESDB), said yesterday he was concerned about the large amount of capital inflow in the past few weeks that had caused a sharp rise in the value of the baht.

"The problem is that the magnitude of daily capital inflow has increased sharply. In the past about US$100 million [Bt3.76 billion] flowed in daily but this has jumped to $500m a day," he said.

The country is facing a new chapter of capital inflows into the stock and bond markets that is resulting in a highly volatile exchange rate. And it is the duty of the Finance Ministry and central bank to look at the issue, he said.

Asked whether the ministry should impose tax in order to deter capital inflow, Ampon said he thought monetary policy should be more appropriate.

Pridiyathorn said earlier that the bank would not oppose the currency market trend, implying that the bank would allow the baht to strengthen despite its regular intervention to stabilise the currency.

The central bank's recent intervention to curb the strengthening baht is a short-term measure aimed at preventing excessive inflows that might lead to a rapid rise in the currency's value, which would hurt the economy and exports, Thanong said.

"The movement of the baht should be gradual. If it needs to be firmer, it should rise in steps," he said.

At midday yesterday, the dollar was at Bt37.605, barely changed from Bt37.61 earlier. It has weakened from Bt41.025 at the beginning of the year. The baht closed at Bt37.62 yesterday.

Thanong said that while the baht's firmer tone was in line with a regional trend and did not substantially affect the country's competitiveness, there could be a possible slowdown in investment, which could weigh on economic growth.

Many business operators have deferred their investments due to domestic political uncertainty and higher interest rates.

"I expect economic growth this year to be between 4.2 and 4.5 per cent, and next year between 3.75 and 4 per cent," said Thanong.

The ministry's official growth forecast for this calendar year ranges from 4 to 5 per cent. It has yet to issue its growth projection for next year.

Ampon predicted that the economy would slow down in the first quarter next year largely due to slack private investment, which was something he was concerned about.

Exports have risen more than the NESDB expected and capacity utilisation in many industries has almost reached the ceiling. But firms are still reluctant to invest, he said.

Ampon, however, was optimistic, saying the country has already come through several negative factors such as high oil prices, the impact of the tsunami, bird flu and political uncertainty.

He said the NESDB was also aware of rising household debt, with the highest income group, or top 20 per cent of the population, accumulating 70 per cent of the total Bt1.2 trillion debt.

Of this, 80 per cent was spent on education, housing and cars, while 19 per cent was for consumption, he said.

In order to discourage debt creation, the central bank has started to look at non-bank and credit card operators that provide fast cash for consumers, he said.

Meanwhile, the director-general of the Crown Property Bureau, Chirayu Israngkun Na Ayuthaya, said the sufficiency economy philosophy initiated by His Majesty the King could be applied to every sector of society, from members of the public to business people, firms, academics, civil servants and politicians.

Chirayu, who is also chairman of the subcommittee in charge of the sufficiency economy campaign, said that if individuals and the country did not accumulate excessive debts, the country would be immune to economic shocks.

He said he expects a large number of individuals, private firms and institutions to begin implementing the sufficiency economy philosophy by the end of next year. For the time being, Chirayu said it is a period in which to boost understanding of the concept.

Wichit Chaitrong

The Nation