The announcement - coming as the baht touched 35.21 to the US dollar - has prompted the market to guess that the new measure is about taxing speculative capital inflows.

Assistant Governor Nitaya Pibulratanagit said yesterday that the new measures were designed to tackle the problem directly and completely, without hurting the economy. She admitted that taxation is an option the central bank has been studying along with others.

The central bank has threatened to use withholding tax to curb speculative capital inflows, if existing measures failed to squash betting on the baht.

"We have to be cautious and take appropriate measures that should correct the problem at its root and shouldn't have a negative impact [on the economy]," she said.

Speculative capital continues to flow into the country, she said. The baht was stronger by 0.11 per cent from Thursday and by 2.36 per cent from the end of last month.

Yesterday, the baht opened at 35.25/35.27 and closed at 35.25/35.28 after peaking at 35.21. It has gained about 15 per cent this year.

The measures launched on December 4 were not effective including the one limiting sell-and-buy-back transactions, because bond prices have not dropped as much as the central bank had hoped, she said.

"Bond prices and yields didn't react much to the measures compared with the pace of increase in bond prices earlier," she said.

Deputy governor Atchana Waiquamdee said the central bank has not yet found which channels the speculators are using to bring their money in but the central bank would sweep away the speculative inflows soon. She is optimistic that the appreciating baht would reverse course along with the country running a current-account deficit next year.

"We are tracing where the inflows are going to but the stronger baht indicates that speculative transactions remain," she said.

A central bank source said the selective measures would not be effective in general. The central bank has to find the speculative sources before considering carefully what new selective measures or incentives were proper to stem the speculative inflows.

A commercial bank source said the selective measures may help slow down the baht only in the short run but speculators would find further loopholes to put the baht into play.

In Chile's case, the government there had set a reserve requirement of 30 per cent of overall capital inflow. The reserve money would be returned to those investors who held their funds for a set period, while short-term investors would be penalised by being charged the reserve when they withdrew their funds.

Atchana said economic fundamentals are attractive with faster-than-expected economic growth of 4.7 per cent in the third quarter, low inflation and a low price-to-earnings ratio of the stock market. The economy has proved its resilience after passing through supply shocks over the past two years.

As of December 8, international reserves were US$64.7 billion (Bt2.6 trillion), up from $64.2 billion the previous week. The difference indicated that the central bank used more than Bt17 billion to intervene in the foreign-exchange market during the week.

Deputy Premier and Finance Minister Pridiyathorn Devakula finally conceded that the strengthening of the baht was a problem. Earlier he had appeared not too worried about it.

He dismissed a report of a Cabinet reshuffle that might see new economic faces, saying there was no need to appoint more economic ministers.

"The economy is going as usual. The only problem is the baht appreciation that gives exporters some trouble," he told reporters.

Praipol Koomsup, an economist at Thammasat University, urged the central bank to lower its policy interest rate as a signal to investors who want to hold the baht as the greenback is weakening.

He said the central bank was too worried about inflation. The stronger baht and lower price of oil have already eased inflationary pressures.

Ampon Kittiampon, secretary-general of the state National Economic and Social Development Board, said the central bank shouldn't fight the market as they consider ways to stem the baht's recent surge against the dollar.

Before the authorities respond to calls by exporters for the government to take urgent action to weaken the baht, they need to consider future repercussions of short-term measures, which could end up distorting market mechanisms, he said.

While Ampon did not recommend any specific measures, he did tell reporters it would be "better to fix the problem on the basis of the market mechanism".

Anoma Srisukkasem

The Nation