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Published on February 23, 2008

The Bank of Thailand (BOT) said it was continuing to intervene in forex markets to stabilise the baht and the Kingdom's competitiveness remained unchanged as it was moving in line with other currencies in the region.

The baht opened at Bt32.45 to Bt32.46 against the US dollar and strengthened throughout the day's trading to close at a peak of Bt32.30 to Bt32.31 despite intervention from the central bank, dealers said.

A forex dealer at BankThai said the baht's appreciation was due mainly to the weakening of the dollar after US economic data announced on Wednesday showed negative signs. In particular, the growth of US gross domestic product (GDP) this year is expected to be lower than earlier forecast.

She expects the baht to strengthen to around Bt32 to Bt32.40 in the coming week on pressure from the US currency and economy and said investors should follow the signal from the Monetary Policy Committee meeting next week. If the country's policy rate is lowered in line with the US Federal Reserve's recent cut, this will also affect the baht, she said.

Meanwhile, a dealer at Bangkok Bank said exporters were continuing to sell dollars as they expected the currency to weaken further due to the negative economic outlook in the US.

BOT assistant governor Suchada Kirakul said the central bank had already taken into account a US recession in its economic projections for a worst-case scenario.

She urged exporters, importers and debtors to hedge their exposure as the baht could fluctuate from capital flows into the region.

"They should manage their risk, because the currency will not move in just one direction. When it is weak, it could strengthen, and when it appreciates, it could depreciate," she said.

The US Federal Reserve cut its economic-growth projection for this year from 1.8-2.5 per cent to 1.3-2 per cent due to the sub-prime crisis, credit crunch and rising oil price.

The world's largest economy is also worried about surges in inflation and unemployment. It revised upward the inflation projection from 1.7-1.9 per cent to 2-2.2 per cent.

The baht strengthened last week due to capital inflows into the stock market, and panicked exporters worried about possible revocation of the withholding reserve requirement.

"It was a psychological effect; exporters panicked over the news that the withholding reserve requirement would be removed," said Suchada.

As a result, the baht surged by more than 1 per cent on February 14 and 15.

As of February 15, the country's net international reserves totalled US$117.6 billion (Bt3.8 trillion), up $1.7 billion from a week earlier.

The baht has risen 4.27 per cent against the dollar this year. The Thai unit appreciated 11.59 per cent against the greenback during 2007, compared with 10.92 per cent for the yen, 9.67 per cent for the ringgit and 9.05 per cent for the Singaporean dollar.

Suchada said the market should compare the baht not only against the US dollar but against other currencies too. The country has not yet lost its competitiveness, she insisted.

However, according to the BOT's data, the nominal effective exchange rate (NEER) stood at 78.06 in January compared with 77.78 in December, which indicates that the Kingdom's competitiveness has declined.

Finance Minister Surapong Suebwonglee is confident that the recent spikes in oil prices will not hurt Thailand's 2008 GDP.

"The GDP growth rate of 4.5-5 per cent is based on conservative assumptions," he said yesterday.

"However, if the upward movement continues, we may need to review the figures," he said.

Oil prices have risen above $100 per barrel on fears that the US economy will suffer a blow from the sub-prime mortgage crisis and the entire world will be affected by the spill-over effects.

On the 30-per-cent capital-reserve requirement, Surapong said that if the BOT's data was complete, the ministry was ready to immediately make a decision whether to maintain or abolish the measure. The central bank is scheduled to submit the required data within the next two weeks.

Anoma Srisukkasem,

Wichit Chaitrong,

Somruedi Banchongduang

The Nation