The Bank of Thailand (BOT) insisted the rise in the baht has been in line with other currencies, despite the sharp spike against the US dollar that pushed the currency above the level of 35 to the greenback yesterday, provoking further complaints from exporters.

Without the intervention, the baht could have hit 34.80 yesterday, said one dealer at a commercial bank.

"The central bank stepped into the market many times yesterday to pull down the baht, but despite the interventions, the baht would not become weaker than 35.10, due to massive dollar selling pressure from exporters," said the dealer.

The baht opened at 35.01/35.04 to the dollar yesterday. It weakened slightly as importers rushed to buy back dollars on expectation that the central bank would intervene once the baht exceeded 35 to the dollar. However, strong dollar selling pressure from exporters pushed the baht up to a nine-year high of 34.975. Thanks to intervention, the baht ended the day at 35.

BOT Governor Tarisa Watanagase said the central bank had informed exporters the appreciation was not driven by speculators, but rather by the rumoured revocation of the unremunerated reserve requirement.

Rice Exporters Association president Chookiat Ophaswongse yesterday said the stronger baht would directly damage exports, particularly agricultural goods. Farm goods are 100-per-cent local content, so the sector cannot enjoy any benefit from the cheaper cost of imported raw materials.

Despite Thailand being the world's biggest rice-exporting country, the baht appreciation has affected rice exporters, with some companies considering stopping exports to avoid losses from the baht appreciation.

"If Thai rice exporters quote high export prices, importers will shift to buy from our rivals, such as Vietnam," he said, adding that the central bank should closely monitor the problem to maintain the baht's value relative to other regional currencies.

"We're in trouble, because the baht hit 34.99 to the dollar. It's the worst level. Some companies were discouraged and scrapped exports. They've learned to rest rather than continue exporting at a loss," he said.

The Kingdom's total rice export volume is predicted to reach 8.5 million tonnes this year, but the export value cannot be predicted, due to the uncertain exchange rate.

Commerce Minister Krirk-krai Jirapaet said he had two points of concern: whether the current rate was stable; and whether other regional currencies were moving in the same direction. He said if other currencies were not as strong as the baht, exporters and manufacturers would have to revamp their marketing plans to cope with rivals.

While exporters were in a panic to sell and complained of lower competitiveness from the stronger baht, BOT Assistant Governor Suchada Kirakul said exporters should consider not only the baht's movement against the dollar, but also the currencies of trading partners against the greenback. The Nominal Effective Exchange Rate (Neer) Index, which tracked the comparative movements of various currencies, would partly indicate Thailand's competitiveness, compared with 21 other countries.

From March 1-13, the Neer Index strengthened 0.87 per cent, while during the same period the baht strengthened 1.6 per cent. This implied that the baht appreciation remained in line with other currencies. The competitiveness remains intact as inflation is expected to be low, she said.

The central bank will take the time to consider the market's reaction before deciding whether to revoke the withholding reserve but will still keep the fully hedged measure unchanged, said Suchada.

Suchada also said that without the measure, the baht could be stronger, due to Thailand's current-account surplus and capital inflows into the stock market, as well as direct investment.

As many parties called for a sharp interest-rate cut, the assistant governor said the market had already priced in the trend, which was experienced in returns of the bond market. An aggressive rate cut would not help reduce debtors' monthly instalments, but rather only shorten the instalment period. In contrast, a speed-up would adversely affect depositors, because they would have no time to seek other sources of investment.

The Monetary Policy Committee will consider a rate cut based on new data, including economic growth of 4.2 per cent in last year's fourth quarter, which was lower than the forecast of 4.4-4.6 per cent.

Aat Pisanwanich, director of the International Trade Studies Centre at the University of the Thai Chamber of Commerce, said the baht volatility for three consecutive years was damaging the country's economy. In the worst-case scenario, continued baht strength would force some manufacturers to shut down operations.

"It's worrying. The data show first-quarter exports could be only 10 per cent, against 17 per cent last year," he said.

"The private sector has maintained neutral gear not only in business, but also in spending. If the government cannot find a way out, the country's economy is forecast to grow less than 4-5 per cent."

Aat suggested the Finance Ministry revise its financial-management policy. The ministry should conduct a study to compare its financial policy with that of other Asian countries, such as China and Japan. Thailand should also encourage exporters and manufacturers to trade in other currencies instead of dollars, in order to reduce foreign-exchange risks.

Anoma Srisukkasem

Petchanet Pratruangkrai

The Nation