Last week, the central bank had to reverse certain aspects of the measure to impose a 30-per-cent reserve withholding on certain capital inflows only one day after it took effect, exempting stock and foreign direct investment, because the initial requirements led to a stock market crash.

Tarisa Watanagase, the central bank's governor, said exemptions would not be granted for investment in property funds or for loans between firms in Thailand and their offshore parent companies, and that the overall framework of the measures would stay in place for as long as necessary.

Vijit Supinit, chairman of the Stock Exchange of Thailand, said the SET's board of directors would discuss the issue today, and he would consider the situation before proposing anything to the BOT.

"The central bank's relaxation on the reserve requirement for the SET is a good thing that has helped the SET to recover," Vijit said.

However, he said he would like to consider the impact on the property fund for a while. Any change of the reserve requirement should consider the consequences for foreign exchange as well.

Tarisa said there should be a time frame for the reserve requirement.

"Once the baht is moving in line with regional units, the measures will be unnecessary," she said.  

Prior to the implementation of the measures to reduce speculative capital inflows, the excessive strength of the baht was not justified by the country's economic fundamentals, Tarisa said.

The baht hit a nine-year high of Bt35.06 to the dollar on December 18, the day before the withholding requirement was imposed, and yesterday it softened to Bt36.37-Bt36.40.

Tarisa reiterated the measures so far have been effective at "slowing down the volatility of the baht and are beneficial to the export sector, which is an economic driver".

Although the newly-introduced measures caused panic on the Stock Exchange of Thailand last week, they wouldn't interfere with private investment and would have no direct effect on the country's economic growth prospects, she said.

The Thai stock market yesterday closed 0.64 per cent higher at 688.72. Turnover was light at Bt5.77 billion.

Tarisa said most of the funds that foreign investors cashed out of on the stock market, in a knee-jerk reaction to the capital inflow measures, remain in the country and they are unlikely to be shifted out anytime soon.

"Panic in the stock market is over now ... If these funds [proceeds from foreign net selling of stocks] were going to leave the country, they would be out already. Expectations were that the baht would ease after the measure. They wouldn't wait for the baht to soften further before cashing out," said Tarisa.

The central bank has no plans to introduce further measures to curb capital flows for the time being.

Santi Vilassakdanont, chairman of the Federation of Thai Industries (FTI) said the Thai industrial sector has lost a combined export value of Bt100 billion as a result of the baht's appreciation.

However, he said the FTI expected to finalise the figures from the affected sector within two weeks of the New Year.

Anoma Srisukkasem

The Nation,

Dow Jones Newswire