BoT to encourage baht weakening to boost exports

BANGKOK, Jan 26 – Bank of Thailand (BoT) Board of Governors Chairman Chatumongkol Sonakul on Tuesday revealed the central bank will attempt to implement monetary policy in a way that contributes to weakening the baht in order to boost the export growth.

He said the baht had already begun depreciating, which could help enhance the country’s export expansion. Purchasing power in the export sector is higher than that in domestic consumption sector.

Continued export growth would help increase employment and wages, he said, and could contribute to overall economic growth this year.

Still, he conceded the weakening of the baht would fuel inflationary pressure. Mr Chatumongkol said it would be a duty of the Monetary Policy Committee to supervise the policy to ensure equilibrium.

He said the central bank remained necessary to adopt an interest policy to curb the inflation rise. The inflation rate, if allowed to stay high, would unavoidably affect the Thai economy.

“The rising inflation rate, whether it stems from the production costs or increased purchasing power, is not beneficial to the economy. So, the central bank must lower the inflation.

"In this circumstance, it may lead to a further policy interest rate hike,” he said.

Mr Chatumongkol expressed concerns over the political uncertainties due to continued rallies by anti-government demonstrators, saying it is another key risk factor to Thailand’s economic growth. (MCOT online news)

-- TNA 2011-01-26

For an expat this is probably good news from an exchange rate perspective. However, it sure seems to be somewhat a flip of policy where just a few months ago BOT was routinely talking about controlling inflation through raising interest rates and the need for exporters to adjust to the stronger baht. With the baht now weakening, it probably does give BOT room to raise rates a little more to help fight inflation with little impact on the baht.

IMHO, market forces, slower GDP/export growth and political turmoil in Thailand have caused the baht to weaken over the last month or two....and BOT, like most national banks across the world such as the US Federal Reserve, are more reactive than proactive...just the nature of things, before and now (and probably the future).

Yeah but haven't they been saying 'We must weaken the baht' for years now?!

It hasn't had a sizeable, visible effect as far as I can see.

So what's the near term dollar baht target? 31, 32, 33, 34?