THE Bank of Thailand’s periodic actions to limit the pace of declines in the baht have reduced the country’s holdings of foreign currency reserves, the central bank’s chief said.
BOT governor Veerathai Santipraphob, acknowledging the institution’s interventions to head off currency depreciation to an extent that can affect the financial markets and businesses, said the reduction in the reserves also reflected changes in the values of a mix of currencies that makes up the country’s reserves.
The BOT’s interventions have been in the line with its policy since Thailand adopted a floating exchange rate regime.
Movements in the baht - up or down - that are deemed to be rapid, can affect the markets and the business sector. As a means of reducing such impacts, the BOT makes interventions from time to time.
Changes in the foreign reserves have mirrored the central bank’s interventions in some periods, but the reduced figure is also the result of changes in the values of a range of currencies that comprise the foreign reserves, Veerathai said.
“When the figure for our foreign reserves changes in US dollar terms, it does not mean that this all comes down to the central bank making currency interventions. It could arise from the changes in value in the holdings of other currencies such as the euro,” he said.
Over the past one to two years, the BOT has been accumulating foreign reserves on expectation for this situation, he said.
Veerathai noted the growing concerns over the global economic system, including capital outflows from emerging-market countries when the monetary policy of the big industrialised countries changes. The accumulated foreign reserves have acted as a buffer to relieve any impact on the Thai economy and the business sector.
Veerathai said that the central bank has been closely monitoring tensions in the escalating trade war, particularly those involving the latest US measures, which could affect several countries.
This is the major risk to countries in East Asia and Thailand that are highly dependent on external trade, even though Thailand is not among the target countries of US action, the central bank chief said, citing the dispersed production chains of products that are sold as Chinese.
He said that unavoidable impacts of the US-China retaliatory measures could be felt on the supply chains as companies are linked.
Thailand may be the exporter of raw materials or intermediate goods that will be used to produce final products in the US’s targeted countries, he said. Therefore, some companies and some products could be affected.
Veerathai said that central banks in Asean, where the growth potential is satisfactory with inflows of investment from large businesses and commercial banks, have joined forces in several dimensions, including promoting the use of local currencies to set product prices. The BOT has teamed up with central banks in Indonesia and Malaysia for such initiatives.
Asean’s central banks have also promoted a scheme for qualified Asean banks, which will allow commercial banks in the region to open in Asean countries more easily and conveniently, he said.
The BOT has reached an agreement with the Malaysian central bank on this matter, which requires parliamentary approval from both countries.
Banks in Asean countries have also begun to share information relating to the prevention of financial strains, as well as coming together to encourage the adoption of financial technologies, Veerathai said.