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Published on December 21, 2007

After close monitoring of the exchange rate, Olarn Chaipravat, advisor to the Fiscal Policy Research Institute, yesterday claimed the central bank implemented a new exchange rate policy in September, resulting in a more stable baht against the US dollar.

Over the last four months, the baht had appreciated 1.7 per cent against the US dollar, the same rate of appreciation as against the yuan and the ringgit.

The BOT has now embraced a managed float exchange rate after free floating for 10 years, which in recent years has resulted in the rapid appreciation of the baht,  Olarn said.

Officially, the BOT abandoned the fixed exchange rate in July 2, 1997 and adopted a "managed float exchange rate regime". But Olarn said the central bank had only started to manage the exchange rate since September.

It was a "managed float with a target exchange rate and with a narrow band fluctuation system", Olarn said at a seminar hosted by the Fiscal Policy Research Institute. Since early September to yesterday, the baht has moved between 24.29 to 33.60. Olarn predicted by the end of this year the baht would be Bt36.61 per dollar. The BOT has anchored the baht to three key currencies - the US dollar, the euro and the yen - since September, said Olarn, adding the bank changed the component of foreign reserves. Currently, the bank's foreign reserves have a weighted dollar of 60 per cent, euro 30 per cent and yen 10 per cent.

He said since September the baht had depreciated 0.8 per cent against the euro and 4 per cent against the yen, while the baht appreciated 1.7 per cent against the dollar. The rate would be maintained until the end of this year.

China has announced that it will let its yuan appreciate against the dollar no more that 5 per cent annually and Malaysia has also followed this policy, Olarn said.

The United States has pressured China to allow the yuan to appreciate 15 per cent or more in order to narrow the large trade surplus that China has with the US.

"The Bank of Thailand currently does the same as China does, allowing a narrow band of fluctuations. This will maintain Thailand's competitiveness in the world the market," Olarn said.

Olarn said the new regime would reduce the cost of intervention in the market to restrain the baht from rapid appreciation.

He urged the BOT and the new government formed after the general election to discuss the new exchange rate regime and announce the new policy in a transparent manner. This would create more confidence among the business community, he added.

Wichit Chaitrong

 The Nation