Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has invited members of the Bank of Thailand’s Monetary Policy Committee for a meeting next Monday at Government House to discuss measures to curb the strong baht.
The move is unprecedented because never before in the panel’s history have its members held a meeting outside the central bank’s Bang Khunphrom headquarters.
It is not known yet whether the seven members of the MPC, one of who is BOT Governor Prasarn Trairatvorakul, would accept Kittiratt’s invitation. Kittiratt said yesterday that he had invited the MPC members and representatives of the private sector to discuss measures to manage the exchange rates.
“All parties should work together to tackle the strong baht problem,” he said.
The invitation is seen as reflecting Kittiratt’s attempt to intervene in the MPC’s affairs so that it agrees with him over a need to cut the interest rate sharply – by one full percentage point – to stem capital inflows. It is also being seen as a move to bypass Prasarn, who is not on good terms with Kittiratt, and lobby the MPC members directly.
Prasarn and the MPC have been resisting a rate cut. They have been showing concern over rising asset prices and household debt, although inflation is weakening. Further rate cuts would create further bubbles.
The BOT has proposed four measures to curb the baht’s appreciation:
_ Prohibit foreign investors from purchasing the central bank’s bonds;
_ Set a minimum period of 3-6 months for foreigners to hold government bonds;
_ Impose levies and fees on capital gains from bond investment by foreign investors; and
_ Mandatory foreign exchange hedging for foreign investors holding up the policy rate at 2.75 per cent.
The finance minister, however, has insisted on an interest rate cut as the only option to deal with the baht rise. He said it is now not necessary to implement any additional measures to curb the rise at this time.
The MPC has mainly focused on curbing inflation, but the current global trade and liquidity situation has considerable impact on the baht’s exchange rate, Kittiratt said.
“We should now try to maintain the baht’s exchange rate at a competitive level with those of trading partners and competitors, not just sticking solely with the US dollar,” he said.
Prasarn yesterday softened his stance, saying Thailand’s relatively high interest rate is a factor in attracting capital inflows and leading to the baht’s appreciation. And there is more need to focus on the exchange rate management.
It is too early to say when the four measures to curb the strong baht, which were proposed to the Cabinet, would be implemented, the central bank governor said.
According to Prasarn, the baht’s current exchange rate is not far off from other regional currencies, but has appreciated the most this year among the regional currencies.
The baht has weakened in relation to the US dollar in the past two weeks amid concerns of possible measures to curb the strong baht. The baht was moving between 29.42 and 29.47 against the dollar, which is 4 per cent stronger from year-end 2012.
At the MPC’s next meeting on May 29, it is likely that the policy interest rate could be cut from 2.75 to 2.50 per cent, given the loosening monetary policy adopted by the European Central Bank, the Bank of Korea, the Reserve Bank of India, and the Reserve Bank of Australia.