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Published on August 24, 2007

"Even the US Federal Reserve cannot control the movement of the US dollar. There should be other constructive measures to curb the baht's movement, such as the issuance of financial instruments," he told an Economic Reporters Association meeting.

The baht rose slightly against the dollar yesterday, closing at Bt34.39-Bt42 compared to Wednesday's Bt34.45-Bt47. Against the euro, the unit was quoted at Bt46.60-Bt80 from Bt46.42-Bt50.

Bank of Thailand (BOT) assistant governor Nitaya Pibulratanagit said the baht had not gained sufficiently during the day to cause the central bank to find out the exact causes of the appreciation.

The baht's movement was normal, she said. Under the floating exchange-rate regime, it could move up and down, driven by the market mechanism. "It slightly appreciated by only Bt0.05-Bt0.10 a dollar, which is so small," she added.

The baht has been weaker recently due to risk aversion caused by the US sub-prime mortgage problem. Foreign capital has flowed out of the country, heading back to the United States to top up institutional portfolios.

The central bank has stepped into the forex market to stabilise the baht and issue BOT bonds to sterilise the liquidity, Nitaya said. However, it could not strongly resist the force of capital tides, otherwise it must spend a lot of resources to hold the baht unchanged.

"It's like a big elephant in a small swamp in that the capital inflows have shaken the baht. We did as much as we could, but couldn't halt the baht's movement completely. Not any country could go against the market."

Meanwhile, the Finance Ministry maintained its economic growth forecast at 4 per cent for the year, despite lowering its projection for export growth.

Export volume is expected to expand by 6.5 per cent this year, down from 8.1 per cent estimated earlier, said Pannee Sathavarodom, director-general of the Fiscal Policy Office. The sharp fall in export growth last month was largely caused by the stronger baht.

Kanit Sangsubhan, director of the Fiscal Research Institute, believes economic growth next year will be higher than 4 per cent, as risk factors will be less than this year. If the central bank can manage the exchange rate properly, the outlook for economic growth will be bright, he said.

In spite of the slowdown in exports due to the problems in the US - a major market - Japan, South Korea and Singapore still enjoy robust exports. This suggests Thai exports are not affected by the global economic slowdown, said Ekniti Nitithanprapas, deputy spokesman of the Finance Ministry.

He said only Taiwan faced an export growth slowdown in July - to 8.2 per cent from 11 per cent in the previous month. Japan's exports grew 11.7 per cent in July, South Korea's expanded 17.8 per cent and Singapore's rose 14 per cent from 8.6 per cent, 14.6 per cent and 4.1 per cent in June respectively.

Government spending and consumption will compensate for the export slowdown, as the government is expected to meet the target of disbursing 93 per cent of the budget of Bt1.42 trillion for the current fiscal year, he said.

While private investment and private consumption will pick up in the rest of the year due to the better outlook for the political situation, full-year private investment will be flat while consumption will expand only 2 per cent, down from 2.3 per cent predicted earlier, he added.

The Finance Ministry also revised downward its inflation forecast to 2 per cent from 2.8 per cent.

This suggests that the central bank may decide on another cut in its policy rate of 25 basis points to 3 per cent, analysts said.

The current-account surplus is expected to be as high as 5.1 per cent of gross domestic product, as import volume is expected to expand only 2 per cent compared with 5.2 per cent estimated earlier.

Suparut Kawatkul, permanent secretary for finance, said the recent pressure on the baht has eased, due largely to capital outflows. Inflows and outflows will be a major cause for movement of the exchange rate while the central bank's measures will be less effective in influencing it, he said.

The baht has weakened to about Bt34.50 against the greenback from its Bt33 level early last month. The ministry's latest assumption is that the unit will be about Bt34.75 this year, up from the previous projection of Bt35. Last year the baht averaged Bt38.

Anoma Srisukkasem,

Wichit Chaitrong

The Nation