THE BANK OF THAILAND says it is confident that the baht will not follow the plunge of Argentina's peso, given Thailand's strong economic fundamentals. However, it concedes that the local political problem is a concern.
The Thai central bank also believes that if the results of the next meeting of the US Federal Open Market Committee (FOMC) are as expected, the effect on the baht will be minimal.
BOT spokeswoman Roong Malikamas said she believed there would be little impact on the baht from the plunge in some emerging-market currencies, particularly Argentina’s peso, as the Thai economy was well fortified.
“Thailand’s current situation is unlike that in 1997, as our economy is not fragile. We do not use monetary policy to distort the market mechanism. We let the baht move in line with the market, and there is no accumulation of imbalance.
“There is no chance for the baht to move sharply,” she said.
Most countries now experiencing currency problems have had to cope with high inflation and current-account deficits of no less than 3 per cent. Thailand’s inflation is low and its 2013 current account was close to balance.
Roong explained that Thailand’s foreign reserves remained at a very high level. The ratio of foreign reserves to short-term debts was about 300 per cent, higher than emerging-market countries’ 260-per-cent average and Argentina’s 160 per cent.
“Thai financial institutions are also strong with relatively high loan-loss provisions. Their capital-adequacy ratio is higher than 16.6 per cent, more than double the BOT’s minimum requirement,” she said.
However, she conceded that Thailand’s political problem remained a risk that needed to be monitored and could affect the baht. This is no time for complacency, she warned.
The baht depreciated rapidly compared with its regional peers last month when political tension rose. This month, it has been relatively stable as the political situation has not changed much and has now been factored into markets.
Roong said the Argentine peso depreciated sharply late last week because of the South American country’s economic fundamentals and the tapering of US’ monetary stimulus. Argentina had previously focused on restrictions on its currency that did not reflect the real economic fundamentals. Its foreign reserves also dropped sharply, from US$50 billion to less than $30 billion. The country has also faced high inflation and consistent current-account deficits.
“This is not a new issue,” she said. “The currencies of countries like Argentina or Turkey came under pressure last year. Their currencies recorded much depreciation. Foreign investors have been watching them. [I] believe investors see how Thailand’s economic fundamentals are.”
She added that money markets mostly expected the FOMC to decide on further reduction of US monetary stimulus by about US$10 billion a month at its next meeting. If so, the baht may not see much impact.