BOT 'coping with inflows'
Central bank chief says it's a myth that high interest rate attracting capital; Prasarn says measures to tackle influx awaiting nod from Finance MinistryBank of Thailand (BOT) Governor Prasarn Trairatvorakul said the central bank has measures in place to cope with volatility caused by either capital inflows or outflows, insisting that adjusting the policy rate alone could not help Thailand swim against the tide.
The governor said yesterday that the baht has actually stabilised in the past three to four weeks, without the central bank's interference. Inflows are slowing down, even with the policy rate maintained at the current level, he said.
He said the baht's rapid appreciation in the first few months of this year was a result of the currency coming in line with other regional currencies' exchange rates against the dollar, and that investors had simply "caught up". Since the end of 2011, the Thai currency has appreciated by 5.6 per cent against the dollar. However, the Philippine peso has surged by 7.9 per cent and South Korea's won by 6.4 per cent.
"It's a myth that a [relatively] high interest rate has attracted more capital inflows, causing a flood of excess liquidity and an appreciation of the baht, leading to asset price bubbles," he said.
"The fact is that the liquidity conditions would be the same [even with a rate cut], as there are dollar buyers out there, and it's not the central bank," he said.
The baht strengthened 0.1 per cent yesterday - and for the week - trading at 29.84 per dollar as of 3.07pm in Bangkok, according to data compiled by Bloomberg. The currency has climbed 2.5 per cent in 2013, the best performance in Asia.
Prasarn said the central bank has measures in place to tackle volatility caused by either outflows or inflows, thanks to its foreign reserves of as much as US$180 billion (Bt5.37 trillion).
He said that the BOT had devised measures to tackle the influx of capital into the country, especially the flexible exchange rate and the support of capital outflows by Thai investors.
It has sought Finance Ministry approval for measures that need its consent.
"Measures will be launched at the appropriate time, as they will have costs. We [the BOT] have looked very carefully into the matter, and at the use of appropriate measures. Any detailed declaration [of these] may not be good for the country," said Prasarn.
Prasarn said it was not true that the high capital inflow into the country would lead to excess liquidity and an assets bubble.
He said that the situation in Thailand now is that the interest rate has been kept low for some time, encouraging individual Thais to invest more in risk assets, rather than keeping their money in banks. This has led to excessive purchases of other assets, such as condominiums and stocks.
The Stock Exchange of Thailand Index yesterday rose 0.74 per cent, or 11.39 points, to 1,540.13 points. The market has been on the rise, though foreign investors this month remain net-sellers.
Prasarn added that the continued monetary easing by the Group of three economies (the US, Japan and Europe) and a decline in risk aversion since mid-2012 had boosted capital flows to Thailand as well as other economies in the region.
"The improved Thai economic outlook relative to other regional economies has also contributed to the baht's recent outperforming [of other currencies]. Major risks remain for some other countries in the region. Korea has seen some adverse impact from the Japanese yen's depreciation. Malaysia is experiencing political uncertainty ahead of the upcoming election, which will be held on June 13. Indonesia and India see chronic current account and fiscal deficits, respectively," Prasarn said.
"Many investors have relocated their investments to Thailand due to the country's strong economic fundamentals and low exposure of foreign investment to the Thai financial markets," he said.
Easy monetary policy in major countries in Asia had driven global investors to search for higher yields, he added.