BOT says capital outflows likely risk

Economy October 19, 2013 00:00

By The Nation

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The Bank of Thailand said there existed a risk of capital outflow after the US resolution of its debt-ceiling problem, while the Fiscal Policy Office expressed confidence that the central bank would deal with possible baht volatility.

The central bank is also confident that the United States will be deal with its debt ceiling the next time it comes up in a few months.

Parisun Chantanahom, BOT senior director for the International Department, expects some foreign capital to flow out of Thailand in the short term after the US approval of draft laws extending the debt ceiling until February. He also urged all parties to prepare for a possibility of long-term capital outflows.

He said that if the US debt ceiling were to be raised, foreign capital would make adjustments, with some probably flowing out of Thailand.

In the long term, capital may flow back to the US, he added.

"The US is probably waiting for a clear picture of its economy, and the US fiscal stance is still uncertain. We need to wait for the next debt-ceiling extension in February. All are afraid of a [repeat of the] problem seen this time. But we believe the US can solve the problem," he said.

In the past three weeks, after the US decided to maintain its monetary stimulus, about US$2 billion to $3 billion in foreign capital returned to Thailand’s bond market, the BOT said, expressing no concern over so much capital inflow.

The baht appreciated 0.7 per cent from a week ago and declined 0.1 per cent yesterday at 31.075 per US dollar as of 4.15pm, according to Bloomberg. It touched 30.963 earlier, the strongest since September 23.

The Thai currency touched the highest level in three weeks after the US Senate voted on Wednesday to halt a 16-day government shutdown and extend the US debt limit.

"The removal of the US default risk added to improving risk sentiment," Bloomberg quoted Hideki Hayashi, a researcher at the Japan Centre for Economic Research in Tokyo, as saying.

Somchai Sajjapong, director-general of the Thai Fiscal Policy Office, said the real US problem had not been solved yet and it was only buying time to soothe the global economy.

After a meeting with Prime Minister Yingluck Shinawatra, he said the FPO, the BOT and the National Economic and Social Development Board had assessed the situation and stood ready to deal with it.

The BOT has tools available if the baht appreciates, he said. Thailand has foreign-exchange reserves of $170 billion (nearly Bt5.3 trillion).

In response to academics’ expectations about the US monetary stimulus tapering, Somchai said a reduction could indicate a US economic recovery without the need for such stimulus. If the US economy stages a recovery, Thailand will be able to export more products to that country.