BOT eases rules for hedging

The Bank of Thailand has further relaxed the capital-control requirement, even as the baht further appreciated to a new 10-year high above the Bt34/US dollar level due to continued inflows to the stock market.

The central bank yesterday decided to allow non-residents with non-speculative transactions in Thailand to conduct hedging or sell-buy swaps.

The relaxation of the 30-per-cent reserve requirement covers their baht-denominated transactions with local financial institutions.

The BOT expects the move will end the recent volatility and narrow the difference in the baht levels between the onshore and offshore markets.

The baht continued to rise against the dollar yesterday, breaking another 10-year record at Bt33.77-Bt33.78, buoyed largely by foreign inflows.

The Stock Exchange of Thailand, meanwhile, continued to ride the bull, and a leading broker forecast that the SET Index could touch the 1,000 mark in the next 12 months.

Making the prediction, Ayudhya Securities said in its report that the stock market had turned "bullish".

The index is likely to test the psychological barrier of 930 to 1,000 points over the next 12 months, thanks largely to the expected economic recovery during the second and third quarters this year.

The SET added 11.81 points to close at 844.19, after touching the resistance point of 850 in the afternoon session.

The BOT said non-residents (NR) wanting to hedge must have underlying transactions and offshore foreign-exchange hedging outstanding before December 19 last year, the day the central bank introduced the withholding reserve requirement of 30 per cent.

NRs must seek BOT approval between July 16 and August 17. Requests received after the deadline will be denied.

BOT director Suchart Sak-kankosone said the relaxation was aimed at lowering volatility of the baht and the swap rate in the offshore market, and reducing non-residents' hedging transaction costs in the offshore market. He expects the gap between the baht's onshore and offshore rates to narrow.

He said the volatility in the two markets - the gap jumped from Bt1.50 to Bt3 at one point - was undesirable for the central bank.

"We don't want to see baht volatility in the offshore market because it has had a psychological effect on exporters who panicked and quoted prices of export goods relying on the offshore baht," he said after a meeting with dealers from local and foreign banks.

The meeting was held because several non-residents who had baht transactions outside Thailand have asked for permission from the central bank on whether they can hedge in the Thai market, which costs less than the offshore market. Since the withholding reserve requirement was introduced, they have had to incur huge costs of hedging in the foreign market due to low baht supply.

The central bank believes that the baht in the offshore market will probably become weaker, as NRs will be under less pressure to seek the currency offshore.

A dealer from a foreign bank said she did not know whether the relaxation would affect the onshore baht level, but the gap between the two markets was likely to be reduced.

Each NR will be able to shift the hedging transaction only after presenting reliable proof, such as the deal ticket, and getting the BOT's approval.

Meanwhile, Industry Ministry permanent secretary Chakramon Phasukavanich said yesterday that there was little chance of the baht weakening against the greenback, given the continued inflows to the stock market as well as growing export income and foreign direct investment.

He said the likelihood of a general election at the end of the year could also boost investor confidence and consequently lead to further appreciation of the baht.

As a member of the Monetary Policy Committee, which is in charge of setting the policy interest rate, Chakramon said the policy rate at 3.5 per cent was probably at its bottom.

"If the rate is to be cut further, it would be to help the economy, not to stem the baht's appreciation," he said, adding, "If the rate is further cut, it could affect savers in general." The MPC will convene again on July 18.

Meanwhile, the managing director of Trinity Securities, Kampanart Lohacharoenvanich, said the stock index is likely to soar to 1,600 in two years. However, he said he did not think the SET would hit 1,000 points this year, based on the performance of listed companies.

"There may also be corrections in the next one or two weeks," he warned.

But Kampanart believes the SET in the long term could rise fivefold, as the stock market had not performed as well as neighbouring countries since the economic crisis. For instance, the stock market in China has risen four times, while the Indonesian market has increased by three to four times.

Anoma Srisukkasem,

Somreudi  Banchongduang

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