Baht appreciation

[george]

BAHT APPRECIATION: BOT warning to speculators

Published on Aug 30, 2003

Governor threatens to act against firms buying the currency

Bank of Thailand (BOT) Governor MR Pridiyathorn Devakula is threatening to take action against a band of foreign speculators who have caused the baht to appreciate irregularly against the US dollar in recent weeks selling dollars to buy the Thai currency.

"The baht has outpaced other currencies in the region. We have seen some major non-resident players coming in to bet on a steadily stronger baht," he said. "We are monitoring this and are finding appropriate ways to deal with it."

Pridiyathorn did not elaborate on the identities of the speculators or their methods.

Shortly after the central bank governor made these comments, the baht fell to Bt41.23-Bt41.25 to the greenback, compared with a 13-month high of Bt41.08 to the dollar on Thursday.

Pridiyathorn said the baht's recent rise was unusual as there hadn't been any strong equity-linked inflows, which are a common cause of appreciation.

Since the start of the week, foreign stock investors have been net sellers of local shares, but the baht had continued to push higher, renewing 13-month highs against the dollar.

The baht had become a target of speculators because of its potential to get stronger in the future, Pridiyathorn said.

In June, the BOT's Monetary Policy Committee shocked the market by trimming the 14-day repurchase rate by half a percentage point in response to speculation in the currency market. The cut sent the benchmark rate to an all-time low of 1.25 per cent, marginally above the US Federal Reserve Fund's key interest rate of 1 per cent.

Pridiyathorn said that about Bt80 billion had flooded into the Kingdom soon after, only Bt20 billion of which went into the stock market.

BOT Deputy Governor Thirachai Phuvanatnaranubala also said the central bank was closely monitoring the foreign exchange market.

Asked if the central bank's latest cut of its 14-day repurchase rate had helped reduce short-term speculation in the currency market, Thirachai said: "The cut has been generally effective, but this time the inflow is very big."

The significant appreciation of the baht prompted anxiety that it would hurt Thailand's robust exports.

Meanwhile, Kasikorn Research Centre said in a note that the baht has been the region's second strongest currency so far this year, behind only Indonesia's rupiah.

The baht sank 4.7 per cent from Bt43.08 to the dollar at the end of 2002 to Bt41.15 as of yesterday. The Indonesian rupiah, meanwhile, has dipped 4.8 per cent from 8,940 at the end of 2002 to 8,530.

The research house, however, estimated that the appropriate level of the baht was Bt35.3 against the dollar, according to Purchasing Power Parity theory. The theory measures the difference between two countries' purchasing power based on the assumption that goods are mobilised freely between the two countries.

--The Nation 2003-08-30