Wednesday, September 15, 2010

Thai douses speculation of capital controls

BANGKOK: The Bank of Thailand on Wednesday, Sept 15 doused speculation it would impose capital controls or other new measures to rein in its currency.

But some analysts are not convinced and say the baht's surge against the stumbling dollar and the prospect of more gains ahead are piling pressure on the central bank to be more assertive in slowing the currency's rise to protect exporters.

Governor Tarisa Watanagase, who is stepping down at the end of September, said she saw no need to alter the bank's present policy towards the currency.

"Our current policy is OK and there should not be any need to change because there are understandable reasons for the baht's appreciation," she told reporters.

The baht has set 13-year highs against the dollar in the past week but fell on Wednesday in line with other Asian currencies after the Bank of Japan intervened to push down the yen.

Asked about market talk that the Bank of Thailand might consider imposing capital controls after an unscheduled meeting of its Monetary Policy Committee last Friday, Tarisa said: "It was meant for monitoring the baht, which has appreciated fast."

Despite investing in Thai stocks <.SETI>, up 25 percent this year, foreign investors have largely abandoned the Thai bond market after an army-appointed government imposed capital controls in 2006 to curb a rise in the baht.

They were lifted by early 2008. But the baht is on the rise alongside other emerging market currencies and has gained more than 8 percent this year and 3.5 percent in just the last month, bolstered by foreign inflows into stocks.

Foreign investors have bought $1.1 billion of Thai stocks since July 23. For the year, Thailand has net inflows of $544 million.


Concern has been growing in some emerging markets that inflows of money could create asset price bubbles and boost their currencies to levels that would undermine exports. The value of exports in Thailand, for instance, is equivalent to 60 percent of its $264 billion economy, Southeast Asia's second largest.

"I do not rule out a possibility for measures to deal with the baht, although I'm confident we will not see measures like 2006 as feared," said Tisco Securities strategist Viwat Techapoonpol.

"In my view, the Bank of Thailand may do something and the net effect on the stock market is likely to be fairly neutral."

But Capital Nomura economist Nuchjarin Panarode played down the possibility of new measures.

"It's not a surprise that we see markets shift focus to the issue about possible measures to curb the baht. I think the market may take this as an excuse to take profits."

Analysts at Phatra Securities said they expected no substantive measures from the Bank of Thailand until new governor Prasarn Trairatvorakul assumes his post on Oct. 1 and the Monetary Policy Committee meets on Oct. 20.

It sees several options available to the central bank, including reintroducing the 2006 unremunerated reserve requirements tax on short-term inflows, with modifications to dampen its adverse impact.

A capital gains tax is also possible, Phatra said, but this would involve Finance Ministry coordination.

The 2006 capital controls required foreign investors to deposit 30 percent of the money they brought into Thailand with government regulators.

The idea was to slow the baht's rise against the U.S. dollar and halt speculation. But it triggered the biggest-ever daily selloff by value in Thai stock exchange on Dec. 20, 2006, without reversing the trend in the currency. - Reuters

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