BOT to resist lifting curbs

Despite the pledge by the People Power Party (PPP) to win back foreign investment quickly by ending capital controls, the central bank does not plan to revoke the 30-per-cent unremunerated reserve requirement amid volatile economic and financial conditions.

Bank of Thailand (BOT) Assistant Governor Suchada Kirakul yesterday said the central bank would not revoke the measure anytime soon, because it was not an appropriate time.

"Financial stability is not yet back on track. If the pressure on the US dollar remains, and the door is freely opened, capital inflows could flood into the country," she said.

People Power secretary-general Surapong Suebwonglee said in an interview with The Asian Wall Street Journal that the new government's first-up economic plan was the cancellation of all capital controls imposed in December 2006. The BOT requires investors to deposit 30 per cent of their funds destined for the stock market for at least one year.

Earlier, major political parties had said that if elected, they would revoke the measures, to send a message to investors that their governments would be investment-friendly.

Suchada said the cancellation was unlikely to happen anytime soon, because the baht still faced risks from external factors, especially the sub-prime crisis in the US.

The BOT also asked exporters and importers not to bet on a one-way direction of the baht and recommended they hedge constantly, in order to cushion the risks from fast movement of the currency. Yesterday the baht closed at 33.12/33.13 against the dollar, a slight depreciation from early morning, when it started trading at 33.03/33.04.

Suchada said the sub-prime crisis was still continuing, which would result in further depreciation of the dollar. The central bank would have to monitor the situation closely.

Thailand's currency-account surplus remains high, due to low imports in the gloomy investment atmosphere.

Suchada said if the new government sped up investment projects, total investment would increase.

"We cannot tell when the measure will be removed, but it is not a proper time right now. We must ensure economic recovery," said the assistant governor.

The dollar has been weakening against the baht in recent weeks, particularly last Friday, when Thai export companies dumped the greenback. As a result, the central bank stepped into the foreign-exchange market to slow down the strong baht.

However, the appreciating baht slowed yesterday when importers started buying the dollar and exporters sold the dollar slowly. At the same time, the dollar was slightly stronger against the euro and British pound.

Suchada called on exporters and importers to hedge their exposures regularly, because financial fluctuation had continued. "They should not bet on a one-way direction. The baht can go in either direction."

For example, external factors can change, she added. The European Central Bank, which was once expected to raise its key interest rate, would possibly cut the rate in light of the US economic slowdown.

Anoma Srisukkasem

The Nation