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Published on February 16, 2008

The currency opened at 32.75-32.76 against the US dollar and closed at its peak of 32.52-32.53, a level not seen since 1998.

Bank dealers said exporters yesterday continued their selling of dollars since early this week after the government said there was no decision on exactly when the controls on foreign capital would be lifted.

"They earlier speculated that the authorities would scrap the 30-per-cent withholding measure soon. The authorities said [yesterday] the decision on the abolishment was postponed. They just continued selling dollars. They're still concerned about the stronger baht," said a dealer at a Thai bank.

Prime Minister Samak Sundaravej said yesterday that the decision on abolishment of capital controls would be made during the next two months, before the government's road show overseas.

Bank dealers expect the baht to move between 32.45 and 32.80 next week.

Meanwhile, US Federal Reserve chairman Ben Bernanke kept the door open to further interest-rate reductions, saying downside risks to economic growth remained from housing, employment and credit markets.

Yet he appeared more upbeat on the US economy's prospects for later this year and next year, when the combination of fiscal and monetary stimulus kicks in.

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Bernanke said on Thursday in prepared testimony to the US Senate Banking Committee.

Bernanke was testifying along with Treasury Secretary Henry Paulson and Securities and Exchange Commission chairman Christopher Cox. Paulson told senators he expected the economy to stay in positive territory, while Cox talked about enforcement efforts under way involving sub-prime lending.

The Federal Open Market Committee has lowered the US federal-funds rate at which banks lend to each other "aggressively", Bernanke said, by 2.25 percentage points to 3 per cent since September.

In addition, Standard & Poor's Ratings Services said in its statement yesterday that slower economic growth but heightened rates of inflation in 2008 bring challenges to policymakers in developing countries in Asia. However, the situation also offers central banks in these economies a chance to show their mettle.

"As economic growth slows down and inflation rates stay relatively high in 2008, Asia's central banks will face a policy dilemma," said Standard & Poor's credit analyst Kim Eng Tan in a entitled "Inflation Poses Challenges and Opportunities for Developing Asia".

These central banks could aggressively ease monetary policy to support economic activity, but this could cause inflation to rise from already uncomfortable levels, particularly if fiscal policy is already being eased to support growth. Alternatively, they could fight inflation by adopting a tighter policy stance. However, this risks dragging economic growth down further.

"Despite the short-term costs, central banks that respond with prudent monetary policy changes will help to bring about the important benefit of anchoring inflation expectations," Tan said.

This will help to stimulate financial and economic developments, which will benefit sovereign credit rating fundamentals. These benefits include more financing options for their governments, accelerated development of domestic capital markets and improvements to economic-growth potential. The determination of central banks to fight inflation will preserve or strengthen the credit ratings of their respective governments.

Somruedi     Banchongduang

The Nation, Dow Jones Newswires