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Published on August 7, 2007

While Sommai expressed concern about the Bt4 difference in the two markets, which would encourage speculators, Cha-longphob played down his deputy's fears.

The finance minister said there was only a small amount of baht in the offshore market, and hence the level of the baht is naturally higher than in the onshore market. He said the small volume of baht in the offshore market is unlikely to affect the movement of the currency on the onshore market.

In Singapore, the baht is quoted four baht more than the range of 33 to the US dollar in the local market.

Chalongphob ruled out any new government measures and said the central bank might try to explain the situation.

Sommai, however, said he was worried about the separation of the onshore and offshore markets.

He said the big difference in the two markets encouraged speculation. Moreover, he said no other country would allow its currency to have two values in two markets.

He also warned that National Legislative Assembly members were likely to raise the issue during today's debate and grill the government on the issue.

Deputy Prime Minister Kosit Panpiemras yesterday said the current level of the baht was not worrisome.

The country's recent measures to boost capital outflows have yielded satisfactory results, Kosit told reporters. Late last month, the Cabinet approved six measures to encourage capital outflows and slow the sale of dollars by exporters, in order to stem the baht's rapid appreciation.

Meanwhile, Bank of Thailand (BOT) Assistant Governor Nitaya Pibulratanagit yesterday said the central bank had already granted approval for some non-resident investors to shift their offshore swap transactions worth Bt20 billion into the onshore market in line with its relaxation of the withholding reserve-requirement measure.

The moves would not have any effect on the baht as feared, because non-residents have shifted their transactions gradually, she said.

However, the BOT must carefully check related documents to prove the transactions are really based on actual economic activities and not speculation.

The BOT allows non-

residents with underlying transactions before last December 19 to do sell-buy swaps domestically without setting aside 30 per cent of the reserve requirement. They are strictly required to make requests between July 16 and August 17.

After the measure was implemented, Nitaya said the swap rate and baht level between the onshore and offshore markets should have varied slightly, but the difference has since widened to Bt4 from the earlier Bt1 per dollar.

She attributed the gulf partly to the BOT measure to prohibit foreign investors from sending their dividends in baht terms out of the Kingdom. They usually remit about US$6 billion (Bt203 billion) annually.

"Some non-residents expect the BOT to introduce further concrete measures for reining in the baht. Hence, they maintain their baht in the offshore market in hopes of seeking higher returns," said the assistant governor.

Nitaya said the baht had stabilised from lower demand for the currency after some state enterprises repaid their external debts and turned to borrowing from local banks instead. The borrowings would help reduce excess liquidity in the system, freeing the central bank from the need to issue bonds.

Moreover, exporters have postponed sale of their dollars, while importers have bought dollars normally. The BOT has stepped into the market regularly, she said.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation