The Bank of Thailand is closely monitoring the strengthening of the baht, which has been caused by the return of foreign funds to the Kingdom's capital and bond markets due to improved economic and political conditions.
“Thailand has had good news coming out lately, such as the forward movement of the economy, the expectation of a continuous economic recovery in the second half of the year, and the political development of the introduction of the provisional charter, along with clarity in the setting up of government agencies.
“These factors have been interpreted by foreign investors as positive news, which makes them increase their investment weighting on the country,” Roong Mallikamas, spokeswoman of the central bank, said yesterday.
She said that beside the inflow of foreign funds, a reduction in the country’s credit default swap (CDS) level – a measure of the risk of buying government bonds – also indicated that foreign investors were now gaining more confidence in Thailand’s financial markets and economy.
The country’s CDS level fell 28 basis points between May 22, when the military took power, and July 22.
Thailand’s CDS level currently stands at 105.5 basis points, against 133.5 in May, while those of Malaysia and the Philippines stand at 85.3 and 88, down from 97.1 and 95.2 respectively in the same period.
Roong added while CDS levels had fallen across Asia because of increased foreign investor confidence in the region, Thailand’s had reduced the most because of the improving internal situation.
She warned, however, that external factors such as markets’ interpretation of major economies’ fiscal and monetary policies and geopolitical risks could affect the value of the baht in either direction, or lead to an outflow of foreign funds. This makes it important for the central bank to monitor both internal and external factors closely, she explained.