The Bank of Thailand blamed foreign speculators for driving the baht beyond the Bt36 level to an eight-year high yesterday.

The baht opened at Bt36.07-Bt36.10 and closed at its peak for the day of Bt35.95-Bt35.98 - the highest in eight years.

Local bank dealers confirmed that there had been speculation, adding that the currency had appreciated too rapidly also because of the weakening of the US dollar. During the past six months, it has gained Bt2 against the greenback, which is far more than other currencies in the region.

"Without intervention, the baht could rise further to Bt35.80 soon," said one dealer.

Foreign speculators have found new ways of financing the speculation, BOT assistant governor Suchada Kirakul said, adding that the unit has strengthened too quickly - to a level not justified by economic fundamentals.

The BOT has learnt that a number of non-resident investors have bought into baht bonds from Thai banks with the agreement to sell back the bonds in a certain period. This is equivalent to the borrowing of baht from local banks, and waiting for the right time to convert the currency into US dollars when the greenback slides further. Once the first sell-back agreement expires, they strike another revolving contract.

 "This has taken place after the central bank plugged a hole by forbidding commercial banks to sell bills of exchange with a maturity of less than one year to non-residents," Suchada said.

Prior to that, the BOT also forbade non-residents from maintaining individual outstanding deposits of more than Bt300 million.

The new financing scheme by speculators was introduced at a time when domestic interest rates were on a downward trend. This leads to a decline in long-term bond yield curves and boosts trading activity in baht bonds.

The baht came under severe speculative pressure in 1997, when it was dumped heavily. The central bank launched a massive intervention scheme in a bid to prevent the fall, which later led to the unit's devaluation in the same year and the financial crisis.

Suchada said the central bank would investigate and seek cooperation from commercial banks, as it tries to come to grips with the situation.

Exporters have cried foul over the irregular baht movement.

The central bank estimates that every percentage-point increase in the value of the baht against the dollar will slash Thailand's growth in gross domestic product by 0.3 of a percentage point. This would widen the current-account deficit, as export income would be hit as a result. Wider current-account deficits in turn would eventually weaken the baht.

Boonsithi Chokwatana, chairman of Saha Group, said foreign businessmen the company had met had expressed concern over the rising baht.

Industry Minister Kosit Panpiemras yesterday said he was aware of the strong-baht problem, but the decision on whether to intervene in the market is up to the central bank.

Also yesterday, Commerce Minister Krirk-krai Jirapaet said after a discussion with export associations that while the government would seek measures to relieve exporters' burdens due to the strong baht, it would need to ensure the measures do not affect fiscal stability.

"We don't know where the baht is heading, or which measures would be applicable to which product. If we do too much, it could be taken as a subsidy. We need to look at the products, item by item. Exporters also need to be concerned with the exchange effects and urgently improve their product quality," he said.

Representatives from associations involved in frozen foods, chicken and fruit exports expressed concerns over the strong baht. They urged the government to stabilise the baht/dollar rate and monitor comments from economists on the baht's movement.

They also urged the central bank to review the requirement that exporters must hold dollar-denominated bills for 15 days, after receiving payments. The requirement was aimed to prevent pressure on the baht when the currency was weak against dollar.

However, exporters said that holding the dollar would only incur exchange losses once they convert into baht.

Krirk-krai said on Wednesday that he would seek an urgent discussion with Finance Minister MR Pridiyathorn Devakula to use fiscal measures to help exporters.

Despite the baht appreciation, economists polled by Dow Jones Newswires believed the BOT would probably shrug off the pressure and wait until next year to cut the policy rate, which is now 5 per cent. The Monetary Policy Committee next convenes on December 13.

"Many exporters expect the central bank to respond to the baht's strength by cutting interest rates, but the main focus of the central bank's interest-rate policy is price stability. It's not about the interest-rate spread," said Standard Chartered's Usara Wilaipich.

"Besides, a rate cut would have only a brief effect on the baht, which has been driven up by inflows into Thai stocks and bonds."

Anoma Srisukkasem,

 Somruedi Banchongduang

 The Nation