Exporters want govt to rein in the baht
Central bank chief says currency has appreciated too quickly, but remains non-committal on market intervention
Exporters yesterday urged the Bank of Thailand to cut the policy interest rate as a measure to divert foreign capital from the Kingdom and halt the appreciation of the baht.
As the baht continued its upward trend, gaining nearly 3 per cent since the end of 2012, Paiboon Ponsuwanna, chairman of the Thai National Shippers Council, urged the government to take action immediately.
"The government should come up with urgent and concrete measures to manage the currency rather than talk. We [government and traders] want the cause behind the strengthening of the currency to be dealt with soon, otherwise not only the export sector but even inbound tourism would be hurt," said Paiboon.
He said most exporters are facing losses because of the stronger baht. Only large exporters have been less impacted as they could buy hedging contracts.
Vallop Vitanakorn, vice chairman at the Federation of Thai Industries (FTI), said exporters are facing problems on two fronts - the rising baht and the wage hike.
The central bank should urgently cut the policy interest rate while the government should enforce measures to keep the baht below 30 per dollar.
Virabongsa Ramangkura, economic adviser to Prime Minister Yingluck Shinawatra, earlier said that lower policy rates would deter inflows. As the central bank does not need to buy dollars to soften the baht, this will also reduce dollar holdings and prevent further accounting losses. The central bank has amassed over Bt300 billion in accounting losses, due to past interventions.
The baht has appreciated by 2.6 per cent since the end of last year, making it the biggest gainer among Asian currencies.
Bank of Thailand Governor Prasarn Trairatvorakul conceded that the Thai currency has appreciated too rapidly and reiterated his readiness to launch measures to stem the inflow of "hot money" into the bond and equity markets. He noted that most of the inflows are for short-term investment, a sign of speculation. He said the central bank would closely monitor the currency's movement.
"Overall, the baht/dollar exchange rate has moved in line with other regional currencies. The trend could somewhat reverse. Last year, the baht appreciated less than other currencies, but this year the appreciation is more rapid. It is natural. However, those in the foreign exchange market should be careful, as there are signs of speculation. Given the current movement, it seems risks in the foreign-exchange market are overlooked," he said.
He added that the central bank has measures in place to handle capital inflows. However, he declined to comment on whether the central bank would intervene in the market, saying that the bank's main objective is to ensure movement in line with fundamentals.
"I don't think that the baht is moving along a one-way path, as the inflows are for short-term investment. These investors can adjust themselves quickly. Upon any news, volatility could follow and all in the market should stay alert," he warned. Prasarn also said that unlike the attack on the Hong Kong dollar last year, the baht situation is based on market demand and supply.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong yesterday said that the currency is "not at a good level" and exporters will face difficulties should it strengthen further. The government has "no plan to use any drastic measures to interfere in the market," he said.
While economists expect further inflows and appreciation of the baht, Prasarn said it was based on positive economic fundamentals. However, he said Thailand is promoting overseas investment by Thai companies. Last year, direct overseas investment reached US$19 billion (Bt565 billion), against $20 billion inflows.
Kittiratt admitted that the export sector would be challenged if the baht went under 30 to the dollar. He pinned hopes that overseas investment would reduce the pressure while tax measures should also encourage industrialists to import new machinery. The Bt2.27-trillion infrastructure investment project should also spark imports of raw materials. "The government's policy is not to resort to any means that will cause volatility in the financial market," he said.