Earlier this week, the central bank threatened to introduce a withholding tax on capital inflows if recently introduced measures were not effective in preventing the currency speculation partly blamed for the appreciation of the baht.

BOT Governor Tarisa Watanagase said she was studying various new measures to see whether they would be strong enough to reduce volatility in the baht's value.

She said the market had been gradually absorbing the impact of the existing measures and had not reacted to them immediately.

The baht yesterday opened at Bt35.60-63 per dollar, up 0.62 per cent from Monday and 1.07 per cent from the end of November. The currency nonetheless mildly depreciated to close at Bt35.65 to Bt35.68 yesterday.

The opening rate was also stronger by 0.75 per cent against the euro from Monday and 0.12 per cent against the Japanese yen.

When asked what would happen if the existing measures were not effective enough, Tarisa said the central bank would have to eventually launch new measures step by step and wait for clear reactions. The measures could not take effect immediately.

"We do whatever we think we can. I think the market is initially stunned by the measures and it takes time before it reacts," she said.

However, she insisted the BOT had been closely monitoring the movement of the baht, which has been enjoying a roller-coaster ride recently.

The baht has become 14 per cent stronger since the beginning of the year, far beyond the single-digit appreciation of other Asian currencies.

Tarisa did not disclose how long the central bank would take to evaluate the effectiveness of measures already introduced to curb speculation. She said it was prepared to launch more measures if existing ones were not enough to crack down on speculators. The additional measures would not involve tax collection, which is under the authority of the Finance Ministry.

Over the past weeks, central banks across much of Asia have reacted to stronger Asian currencies by vigorously defending the US dollar. Citigroup said in its latest report that currencies in Asia were likely to assume a larger burden of the US dollar's depreciation as it moves away from the euro and other G10 currencies.

Citigroup also recommended that the Thai government should, for instance, lower the hedging requirement (currently at 100 per cent) for institutional investors who invested offshore.

Moreover, the authorities should discourage foreign investors from hedging their baht exposure in the local equity and bond markets.

Citigroup also recommended that the government relax regulations while fast-tracking approval of foreign-exchange transactions involving currency crosses with the baht, to diversify away from US dollar and baht transactions.

Anoma Srisukkasem

The Nation