BOT suspects signs of baht speculation by non-residents

The central bank admitted that it has stepped into the foreign-exchange market to slow down the weakening of the baht caused by demand from foreign investors leaving capital markets and by Thai importers who had bought oil and other commodities.

BOT assistant governor Suchada Kirakul said the central bank found that non-residents (NR) had borrow-

ed baht for dollars, without underlying transactions, from many banks. The behaviour, however, was still minimal.

"We are taking a close look after discovering that there is some speculation from NRs," Suchada said.

The behaviour increased demand for the dollar in the market while demand for the baht was low. Foreign investors have unloaded stocks and bonds and taken dollars out of the country.

Importers have acquired dollars for bill payments on oil, gold, metals and other commodities, while banks have bought dollars to adjust their positions.

The baht yesterday dived to Bt33.45 against the greenback, the lowest level in five months since the January rate was marked at Bt33.64. The baht, however, picked up in the afternoon after the BOT reportedly intervened in the market.

Suchada said the baht has depreciated too rapidly although economic fundamentals were unchanged, hence the central bank had stepped into the market. The country's current-account surplus continued in the first quarter. A seasonal deficit was expected in the second quarter but there would be a slight surplus for the whole year although oil price hikes would continue.

She urged exporters to sell dollars during this time as the baht could turn to appreciate anytime amid a volatile financial situation.

"We monitor the baht to prevent volatility and do not want to see a one-way direction," she said.

The BOT believes the baht would not be much affected by the depreciation of the Vietnamese dong although markets have forecast that Vietnam will experience a financial crisis like Thailand's in 1997.

Suchada said Vietnam was a closed country with capital controls and had lower foreign debts than Thailand's during the 1997 economic crisis.

"There are foreign direct investments flowing into Vietnam. Its market is not big so the depreciation would not greatly affect Thailand," she said.

Meanwhile, she said excess liquidity remained in the system, particularly from large banks who were lenders in the money market.

Many banks had raised interest rates in order to maintain their customer base before the new Deposit Protection Act is implemented on August 11. Yields of government bonds were up in response to concern over inflation.

Suchada said the Monetary Policy Committee has been worried about risks to both economic growth and inflation.