Why Are You Even Here? The Surprising Attitudes of Some Expats in Thailand

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CURRENCY

Outflow stimuli won't affect baht's strength much: researchers

By The Nation

Thailand's latest measures to spur outflows will not alter the balance of payments significantly and the baht is set to appreciate further against the US dollar, according to economic research.

Siam Commercial Bank's Economic Intelligence Centre noted that the extension of the foreign-currency holding limit would not encourage anyone to hold more foreign currencies while the baht is strong. Historically, outflows have been much smaller than inflows. In 2009, outbound non-bank direct investment was only US$4 billion (Bt123 billion), or less than one-third of inbound foreign direct investment of $13.4 billion.

DBS Vickers Securities (Thailand) also expected Thailand to impose a form of capital controls. Generally, it said, it was difficult for emerging-market central banks to reduce net inflows by easing the restrictions on outflows. After all, the favourable growth and interest-rate differential for emerging markets against developed countries implies less incentive for Thai residents to invest or lend abroad. Furthermore, the quantum of investible savings or wealth in developed countries would be larger than in developing countries.

"This is why ultimately it may be difficult for the central bank to avoid some form of control or tax on capital inflows. This could take the form of an unremunerated reserve requirement or a Tobin tax, but we continue to emphasise that the authority will be extremely careful not to close the tap completely or send the wrong signal to foreign investors (such as it did in December 2006)."

Under the five measures, Thai residents and companies can now hold up to $500,000 in foreign-currency accounts in Thailand against the previous limit of $300,000 for companies and $100,000 for individuals. A yearly $200-million ceiling on Thai firms investing in or lending to affiliated companies overseas has been scrapped. Lending to non-affiliated companies is now permitted up to an annual limit of $50 million.

Purchases of overseas property are now allowed up to an annual limit of $10 million against $5 million. Transactions in equity derivatives by non-residents with no physical settlement - where there is no exchange of the underlying shares - must be settled in foreign currency. And exporters can keep up to $50,000 in overseas accounts, from $20,000.

SCB noted "The baht appreciation will continue in line with the weak-dollar policy, coupled with the current-account surplus and persistent inflows to Thailand. The Monetary Policy Committee may not raise the policy rate at all remaining meetings this year if the appreciation continues."

The MPC is to meet on October 20 and December 1. Former deputy prime minister Virabongsa Ramangkura recently criticised the Bank of Thailand for rate hikes, which would make Thailand more attractive for inflows. He complained that the central bank was at the same time trying to promote outflows, and the economy could be derailed by the contradictory policies.

On Thursday, five measures were relaxed to spur outflows as a continuation of the policy to reduce excessive inflows and thus curb the appreciation of the baht.

However, as the central bank noted that real interest rates were still negative and rates still needed to be normalised, DBS said this affirmed its expectation of two more 25-basis-points rate hikes in the fourth quarter.

"By mid-2011, we expect rates to be lifted to 3.00 per cent from 1.75 per cent currently," it said.

-- The Nation 2010-09-27

[Seanextra]

what a sizzleing thread this is !

[thaiedward]

what a sizzleing thread this is !

Dear Sean:

For some of us, it is important.