Kittiratt calls for central bank action to stabilise baht

Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has called on the central bank to rethink its monetary policy in an attempt to achieve stability of the baht.

He said he had expressed his concern about the strong baht in speeches at various events and meetings, as he had been worried about the unit's strength since it had progressively appreciated from Bt31 against the US dollar.

"This does not mean that we are demanding the baht return to the 31 per dollar level, but we want to see stability of the currency through action from the regulator," he said.

Exports are still an important sector for the economy, even though the growth rate might not be as high as in most recent years, the deputy PM said. The country should therefore maintain its export competitiveness, and a stable currency could help achieve this.

Kittiratt said some monetary policies were likely to result in an unusually strong baht, as well as an unusual policy interest rate.

The government alone could not make the baht depreciate, he said, referring to the Finance Ministry's recent request for Cabinet approval of public debt repayment ahead of schedule to overseas creditors.

The government has international debt totalling Bt75 billion, which, even it could repay the amount, in full, would not be sufficient to help the baht to weaken, he said.

The ministry is also issuing an inflation-linked bond aimed at local investors, but foreign investors are also interested because of the attractive return on offer, the finance minister said.

"However, the return on the bond has to be in line with the policy rate, therefore we have to ask the central bank's Monetary Policy Committee to rethink its policy and [take into account] the concerns of the finance minister," he added.

Foreign capital is expected to continue pouring into the Thai bond market as there will be more investments in long-term debt instruments, according to Thai Bond Market Association (ThaiBMA).

Ariya Tiranaprakij, ThaiBMA's executive vice president, said: "Foreign capital continues to flow into bonds and equities in emerging markets, including Thailand, given the higher returns. The Thai policy rate stays at 2.75 per cent while the US [federal fund rate] stands at 0.25 per cent. It's difficult to see bubbles in bond markets as most bond players are institutional investors."

Foreign investors

From the beginning of this year, foreign investors have been net buyers in the Thai bond market. However, it has not been of any irregular amount that could lead to the baht's appreciation, given several impact factors on the Thai currency.

The previous net purchase worth Bt20 billion was for Bt40-billion inflation-linked bonds, about 50 per cent of which were distributed to foreign investors.

However, in February 2012, foreign investors were buyers of Thai bonds worth totalling Bt81 billion, down from the previous month's Bt110 billion foreign buying.

Monthly foreign purchase of bonds averaged Bt10 billion and that was not much, Ariya said.

Recently, foreign capital invested more into bonds with longer maturity, Ariya said.

At the beginning of the year, about 90 per cent of new foreign capital was invested in short-term debt instruments. However, now, about 40 per cent of foreign capital was in bonds with longer maturity.

Now, net foreign holdings for Thai bonds has risen to 9.32 per cent of total outstanding value in the Thai bond market, up from 8.3 per cent at the end of 2012. About 65 per cent of total bond-market value were in longer-maturity bonds while the remaining 35 per cent were in short-maturity bonds.

At the end of 2012, bonds with long maturity accounted for 70 per cent and those with short maturity 30 per cent.