Central Bank Chief Cautions As Baht Gains Extra Strength

[webfact]

Central bank chief cautions as baht gains extra strength
By English News



BANGKOK, April 10 – Thai central bank governor admitted that the baht has appreciated too rapidly – its strongest in 16 years to Bt28.95 against the dollar.

Prasarn Trairatvorakul urged caution during the currency volatility, saying that the Bank of Thailand (BoT) has closely monitored the currency exchange situation.

The Thai currency strengthened by 1.4 per cent against the dollar and 4 per cent against the yen last Friday.

He said the hasty depreciation of the yen was due to an unprecedented stimulus unveiled late last week by new Bank of Japan (BOJ) Governor Haruhiko Kuroda.

The Japanese central bank has continued buying Japanese currency bonds, compelling investors to turn to other regions such as Latin America and Thailand in their bond investment, Mr Prasarn said.

He said another element leading to the capital flow into Thailand was investor views that the weakened yen will have a positive impact on Thailand which is in the supply chain of Japanese manufacturers.

The BoT has used its tools to stem the baht from appreciating too quickly, he said, but it still would not exercise any measures to curb the currency movement.

Mr Prasarn said he will meet with representatives of the public sector on its investment projects and debt repayment plans so that Thailand cashes in on the present situation of the appreciating baht.

He expressed optimism that the possible Korean conflict will not escalate given China’s stance against North Korea’s move.

A war between North and South Korea will definitely affect the economy as it involves many countries including the US, China and Japan, he said. (MCOT online news)


-- TNA 2013-04-10

Latest Thai Baht Exchange rates

http://baht.thaivisa.com

[webfact]

CURRENCY
'New approach needed'
Achara Deboonme
The Nation

1.4 per cent spike in baht 'just the beginning'; gains 'could last 3 years'

BANGKOK: -- Thailand's financial authorities need to come up with new approaches to handle the baht's appreciation, as the gains will probably continue for up to three years or as long as it takes for the three major economies - the United States, the European Union and Japan - to resurrect themselves from their current mess, economists said.

Usara Wilaipich of Standard Chartered Bank (Thai) and Padej Piroonsit of CIMB Thai Bank said the 1.4-per-cent spike in the baht yesterday was just the beginning of an inflow tsunami. While exporters need to seek protection, the authorities are urged to resort to new approaches - which do not need to involve draconian capital controls.

The baht yesterday gained as much as 1.1 per cent in a single day to 28.95 per US dollar, the strongest since July 1997.

"Japan's monetary easing is a game changer. Without it, the baht would not have gained this fast," Usara said. "Thailand may need to rebalance internal and external risks. Internally, our stability is well managed. But as three main dams are releasing huge amounts of water at the same time, we could drown. This requires us to rebalance the risks," she said, reiterating her view that domestic rates should be cut.

She believes the Thai economy is buoyed by stimulus measures and expectations of the Asean Economic Community, not interest rates. Lower rates are necessary, as external risks are far more worrisome than domestic stability, she said.

Padej suggested a reversal of thinking.

"There is no reason for the baht to stop gaining. A lot more is coming this way. It's time we find the advantages of the strong currency, as we can no longer rely on a weak currency to boost exports.

"When Japan was forced to strengthen its currency by 50 per cent, the economy thrived and Japanese companies started to acquire properties overseas. Likewise, Thailand can take this opportunity to improve productivity," he said.

Both Usara and Padej are against capital controls, as negative repercussions of the controls imposed in 2006 are still remembered.

And though they hold conflicting views on interest rates, neither Finance Minister Kittiratt Na-Ranong nor Bank of Thailand Governor Prasarn Trairatvorakul is a fan of such controls either.

Prasarn insisted that no new measures were necessary. The central bank now relies on four policy tools: letting the baht move in line with market movements; promoting overseas investment; intervening in the foreign-exchange market; and monitoring capital flows. He said measures that ran against demand and supply, such as capital controls, would be put in place only in the event of an emergency.

"Capital controls require thorough consideration. Brazil's action to tax portfolio investment affects foreign direct investment. Before we resort to this, we need to consider all possible side effects," he said.

Prasarn attributed the baht's sharp gain to the Bank of Japan's ultra-easing monetary policy and the Bt30-billion (US$1 billion) foreign investment in BTS Group Holdings' property fund. Thin trading, valued at about $200 million to $400 million a day, ahead of the holidays also spurred faster movement.

"The appreciation [of 1.4 per cent against the dollar and 4 per cent against the Japanese yen from Friday to yesterday] was too fast. It's faster than usual," he said.

Global funds bought $292 million more Thai government debt than they sold last week, adding to net purchases of $9.6 billion in the first quarter, official data show. That compares with $31 billion for the whole of 2012.

Padej said: "Despite poor economic indicators in March, Thailand showed a current-account surplus [due to inflows]. I see this continuing not for the short term, but for the medium term, or three years."

Monetary easing in the US and the EU in the past four years has flooded the global economy with excess liquidity of more than $3 trillion. Japan suffered the most last year, as the yen strengthened by 20 per cent. The new Japanese government changed tactics, deciding to inject $2.7 trillion to weaken the yen and boost the economy.

In search of higher returns, the excess liquidity is flowing to Asia, Usara said. China now blocks the gate, India and Indonesia are suffering from current-account deficits, Northeast Asia is caught up in the tensions on the Korean Peninsula, the Philippine peso strengthened considerably in 2012, and Malaysia is about to hold an election.

Thailand is now the most promising destination. Standard Chartered Bank (Thai) targets the baht to end the year at 28.75 per dollar.

"It’s no doubt that the baht could hit the end-year target sooner than expected. The Thai baht could be the world's best-performing currency this year," she said.


-- The Nation 2013-04-10

Latest Thai Baht Exchange rates

http://baht.thaivisa.com

[JetsetBkk]

the strongest since July 1997

Anything interesting happen at that time?

[alant]

the BoT has watched the currency and believes do nothing is best, Thailand can become the hub for strong currencies and it is good for the country. I for one can not refute this as the west will find out, probably too late.

[Suradit69]

the strongest since July 1997

Anything interesting happen at that time?

Not sure if you're being facetious, but it was when the BoT was forced to allow the market to price the Baht exchange rates for lack of foreign currency to support the dollar/baht peg .

But then I suspect you knew that ... although others may not.

Maybe Europe and Japan can use Thailand as a model for the path to recovery of their shambolic economies.

Edited April 10, 2013 by Suradit69

[JetsetBkk]

the strongest since July 1997

Anything interesting happen at that time?

Not sure if you're being facetious, but it was when the BoT was forced to allow the market to price the Baht exchange rates for lack of foreign currency to support the dollar/baht peg .

But then I suspect you knew that ... although others may not.

Maybe Europe and Japan can use Thailand as a model for the path to recovery of their shambolic economies.

I knew I should've put one of these at the end of my post:

[Guest]

the strongest since July 1997

Anything interesting happen at that time?

Yes, and as they say, "it is alright to lose, if you do not lose the lesson." Thailand did learn that if you sleep with dogs, you wake up with fleas, and cut the peg to the US Dollar, and enacted new regulatory and banking practices This lesson has clearly been lost on the Hong Kong Financial Community, who do not seem to understand that they are a dingy tied to a sinking ship.

Time will tell how this all pans out, but I would say this time, Thailand and several SEA countries are this time in the driver's seat, and not a tool for London and New York traders to feed on.

Thailand is in an ideal position to take leadership in the region, and the "flight to quality" that strengthens the Baht, without excessive rates on debt, is a natural and organic expression of confidence and a view of a strong economy in the future.

I like your point very much, and people should really examine which part of the meltdown has been repaired in a way to ensure there is not a repeat performance. The Japanese may want to bait the region to a "race to the bottom" but this time, they will be digging their own grave, have to employ short term interest rate fixes to get out of the tailspin, and at the end of the day, eat their own cold porridge.

[crazykopite]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

[reflectionx]

"Despite poor economic indicators in March, Thailand showed a current-account surplus [due to inflows]. I see this continuing not for the short term, but for the medium term, or three years."

So when the outflow starts, all that will be left is deficit and battered economy. Nuff said ...

[Harry2]

the strongest since July 1997

Anything interesting happen at that time?

Not sure if you're being facetious, but it was when the BoT was forced to allow the market to price the Baht exchange rates for lack of foreign currency to support the dollar/baht peg .

But then I suspect you knew that ... although others may not.

Maybe Europe and Japan can use Thailand as a model for the path to recovery of their shambolic economies.

Not sure if you are being facetious, but 1997 also marked a period when the yen had depreciated some 50% against the baht in a period of under 2 years. The yen has now depreciated nearly 45% against the baht in just 10 months. The effect of a depreciation of this size is typically for Japanese manufacturers to repatriate a significant amount of production back to Japan. The effect of an economy like Thailand's can be dramatically negative as was the case in 1997, itself 'caused' by multiple factors, but one crucial element was the change in the THB-JPY FX rate.

Edited April 10, 2013 by Harry2

[Loptr]

the BoT has watched the currency and believes do nothing is best, Thailand can become the hub for strong currencies and it is good for the country. I for one can not refute this as the west will find out, probably too late.

Might be good for the country as it holds down inflation, but very bad for exports as the strong baht drives up the cost of Thai goods in foreign markets.

Edited April 10, 2013 by Loptr

[JetsetBkk]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

I doubt very much whether the spending power of retired farangs' money is ever considered by anyone - other than farangs, of course.

And when inflation takes off, the only thought of Immigration will be to put the monetary requirement up.

I also doubt that attracting foreigners to live here is a consideration. They want tourists, not retirees. We are tolerated, not desired.

Edited April 10, 2013 by JetsetBkk

[Baerboxer]

the strongest since July 1997

Anything interesting happen at that time?

Not sure if you're being facetious, but it was when the BoT was forced to allow the market to price the Baht exchange rates for lack of foreign currency to support the dollar/baht peg .

But then I suspect you knew that ... although others may not.

Maybe Europe and Japan can use Thailand as a model for the path to recovery of their shambolic economies.

What and go back to building "a strong economy' based on the exploitation of the poorly educated masses with low wages, long hours and a total disregard for health and safety.

There is already still too much corruption in the West, hence the new UK Anti-Bribery legislation (and US). Pity the fraudulent rich bankers and accountants seem above the law.

Yep - can see the parallels already.

[PhilipCook]

Japan exports autos to the world from its factories in Thailand, imported steel(from Japan) makes many parts cheaper, making them more competitive, some may say unfairly more competitive than their non-Japanese competitors. Good time for Thailand to launch the mega projects with loans in dollars, euros and yen......whoops plenty of companies did that here in 1997 too and see how it went for them, ie TPI. OK for the government but local companies should beware.

[Guest]

the strongest since July 1997

Anything interesting happen at that time?

Not sure if you're being facetious, but it was when the BoT was forced to allow the market to price the Baht exchange rates for lack of foreign currency to support the dollar/baht peg .

But then I suspect you knew that ... although others may not.

Maybe Europe and Japan can use Thailand as a model for the path to recovery of their shambolic economies.

Not sure if you are being facetious, but 1997 also marked a period when the yen had depreciated some 50% against the baht in a period of under 2 years. The yen has now depreciated nearly 45% against the baht in just 10 months. The effect of a depreciation of this size is typically for Japanese manufacturers to repatriate a significant amount of production back to Japan. The effect of an economy like Thailand's can be dramatically negative as was the case in 1997, itself 'caused' by multiple factors, but one crucial element was the change in the THB-JPY FX rate.

You have pointed to the most important change, which is the relationship, or in this case "non-relationship" the Baht now enjoys by not being the tail the dog wags.

Ironically, one of the key turning points for Thailand and the Baht was the visits by the highest ranking Japanese Leadership, and series of announcements that more the 1,000 Japanese companies will move to Thailand, participate in the national infrastructure upgrade, and formally announce a long term financial and strategic partnership.

Again, lessons have been learned, and policies put in place, whose secure and measured approach is evidenced by the strength of the Baht. This is not a silly dating game, these funds are the net result of key international investment decisions and only a country interested in cutting their own throat would undercut the nation into which they have fully invested.

In other words, your point has real merit and value, but you can only take one side of it. How does Japan's current devaluation play out in Thailand with CURRENT conditions, which are not a mirror of PAST conditions. This is like saying "When big storms come, area "X" floods because it did in 1997, and overlook the fact that levies, canals and dams are in place. Same rain perhaps, but much different conditions on the ground...yes?

[Guest]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

I doubt very much whether the spending power of retired farangs' money is ever considered by anyone - other than farangs, of course.

And when inflation takes off, the only thought of Immigration will be to put the monetary requirement up.

I also doubt that attracting foreigners to live here is a consideration. They want tourists, not retirees. We are tolerated, not desired.

@ JetsetBkk...well said indeed! It is always amusing that a conversation (and a rather rare one on TV by the reasoned and informed postings) always has the "It is all about me, the poor Farang Retirement Visa..so unappreciated" for the contribution to Thailand. Really, this gentleman should get some Thai friends with "Day Jobs' and families, and see how they view this "valuable contribution. "

You nailed it, "Tolerated" at best...and quickly losing patience with the whole circus the Farang Retirement Group , have brought to town.

If he should ever wonder what it would mean to Thailand to have the Expat Retirement Visa crowd leave, stick a hand in a bucket of water, pull it out quickly, and look at the hole left behind.

[johnlandy]

the strongest since July 1997

Anything interesting happen at that time?

Well yes, if you call the financial crisis that devastated SE Asia 'and which originated in Thailand' as interesting.

Fiscal management in Thailand is based on luck 'not on science'

[blazes]

The big banks, world-wide, can make billions from the yen "carry trade". That is, borrow one billion in Tokyo at 0.5% (say) and invest in Thailand at 2.5% (say).

Nice easy 2% profit on a billion at the click of a mouse.

[MrVain]

A war between North and South Korea will definitely affect the economy as it involves many countries including the US, China and Japan, he said. (MCOT online news)

Common who still believes this smooth talk? Besides that it might be a unpleasant country it is yet again a provocation with a country that not uses a world central bank system, just like other war zones that the 1% is having like chicken hawks letting people like you and me suffer and die. Fight your own fight, we have no business there and the Lego army is no threat.

[MobileContent]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

This is a risk foreigner and expats have to take in when settling in Thailand. BY a drop in 5% we only talk abut 3250 Baht. For working expats I don't see a big problem and I believe it's actually good for Thailand.

For retirees live is still better here then going back to the Western countries where the economies are hitting a low. Also countries such as Cambodia and Malaysia are welcoming foreigners but expats or retirees can't just move their Thai wife and children's to another country.

For me that would not be an option at least.

[Guest]

A war between North and South Korea will definitely affect the economy as it involves many countries including the US, China and Japan, he said. (MCOT online news)

Common who still believes this smooth talk? Besides that it might be a unpleasant country it is yet again a provocation with a country that not uses a world central bank system, just like other war zones that the 1% is having like chicken hawks letting people like you and me suffer and die. Fight your own fight, we have no business there and the Lego army is no threat.

There will be no armed conflict coming form NK, as the "new kid on the block earns his "street creds" with his saber rattling and insane double talk, which his countrymen expect and see as a rite of passage.

If they were to launch one of their feeble missiles, it would be a was measured in hours, or perhaps days...at best. I do not think many people understand what is sitting offshore right now, and the technological and pure destructive power of the US submarine fleet. That little round trip by two Stealth Bombers was a less than subtle message that said, "We flew across the Pacific, dropped dummy bombs on your border, flew home, and not once did you see those planes on your circa 1987 radar systems. That was such a clear and transparent message...the next time we make a round trip, those will not be dummy bombs, and we will be on your doorstep. In the US, it is filed under "Bring it on, MF...Bring it on"

[Plastic Brontosaurus]

To go back to the topic to some degree, I understand that this is worrying for people outside of Asia-Pacific however the THB has not moved significantly compared to the AUD and NZD or other Asian currencies except the JPY. Which is as expected: the EUR is down because the Eurozone have detonated their economy; the USD and JPY are down because they're printing money. The rest of the currencies don't move much. Bottom line: get out of currencies that are being destroyed by their governments, if you can...

[Guest]

The big banks, world-wide, can make billions from the yen "carry trade". That is, borrow one billion in Tokyo at 0.5% (say) and invest in Thailand at 2.5% (say).

Nice easy 2% profit on a billion at the click of a mouse.

I know little about this "easy exchange' and would like to learn more. It does occur to me that borrowing a weak currency to purchase a strong one does seem to be something of a wash...but honestly, would love to learn from you how that works.

[julemanden]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

Or 15-19K to the right person at immigration

[JetsetBkk]

the strongest since July 1997

Anything interesting happen at that time?

Well yes, if you call the financial crisis that devastated SE Asia 'and which originated in Thailand' as interesting.

Fiscal management in Thailand is based on luck 'not on science'

This forum desperately needs one of these added to its available "smileys":

[Guest]

The big banks, world-wide, can make billions from the yen "carry trade". That is, borrow one billion in Tokyo at 0.5% (say) and invest in Thailand at 2.5% (say).

Nice easy 2% profit on a billion at the click of a mouse.

I know little about this "easy exchange' and would like to learn more. It does occur to me that borrowing a weak currency to purchase a strong one does seem to be something of a wash...but honestly, would love to learn from you how that works.

Well, you really got me thinking about this, and looked it up. i do see now how this might work, and has added a new component to the Yen sell off i had not considered. Thank You!

Investopedia explains 'Currency Carry Trade'

Here's an example of a "yen carry trade": a trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately.

[indyuk]

the BoT has watched the currency and believes do nothing is best, Thailand can become the hub for strong currencies and it is good for the country. I for one can not refute this as the west will find out, probably too late.

Might be good for the country as it holds down inflation, but very bad for exports as the strong baht drives up the cost of Thai goods in foreign markets.

Unfortunately a increase in the value of the baht increase the cost of imported products upon which the foreigner relies to maintain the standard of living that he is used too.

[andygunther]

the BoT has watched the currency and believes do nothing is best, Thailand can become the hub for strong currencies and it is good for the country. I for one can not refute this as the west will find out, probably too late.

Might be good for the country as it holds down inflation, but very bad for exports as the strong baht drives up the cost of Thai goods in foreign markets.

Keeping inflation down? Do you ever buy food ? I think that inflation is around 10-15% / year

I am thinking primarily of staple food, like meat, eggs and milk

Edited April 10, 2013 by andygunther

[Guest]

the BoT has watched the currency and believes do nothing is best, Thailand can become the hub for strong currencies and it is good for the country. I for one can not refute this as the west will find out, probably too late.

Might be good for the country as it holds down inflation, but very bad for exports as the strong baht drives up the cost of Thai goods in foreign markets.

Unfortunately a increase in the value of the baht increase the cost of imported products upon which the foreigner relies to maintain the standard of living that he is used too.

I believe you have it backwards. A strong Baht makes Thai exports more expensive, and has the opposite affect on imports.

Think about it. If there were 50 Baht to 1$ USD, and a piece of US candy cost one dollar, it would cost 50 Baht to buy one

(It would cost 50 Baht to buy a dollar)

If a year later, there were 30 Baht to 1$ USD, 30 baht could purchase the same piece of candy.

A strong Baht allows importers to get the same goods, for less Baht.

Now if you are saying, "my funds do not convert to as many Baht as before," that is a different story entirely.

[Pib]

Maybe the BOT and govt should form a committee to study the baht excessive appreciation issue. Be sure there are plenty of academics on the committee since academics can write good reports but mostly get ignored by the general public. How long should the committee be given to resolve the appreciation issue? Until it naturally resolves itself. No one really thinks the committee would issue any recommendations that would be implemented did you?