Thai Baht: Tempers Rise Over B O T Rate Policy

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BAHT
Tempers rise over BOT rate policy
Business Reporters
The Nation


Traffic at Klong Toey port is light as strong baht and weak global demand take a toll on Thai exports.

BANGKOK: -- The differences between the Finance Ministry and the Bank of Thailand (BOT) over baht management are reaching a critical point, amid growing calls from the private sector for harsh measures such as capital controls and a sharp cut in the policy rate.

After a meeting at Government House with government agencies involved, including the central bank, Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong yesterday complained of a headache as the central bank has so far ignored his suggestion for a rate cut. Prasarn attended the meeting at the Government House, along with Finance Permanent Secretary Areepong Bhoocha-oom and chiefs of Budget Bureau and the National Economic and Social Development Board. Before leaving to Brunei to attend the 22nd Asean Summit Prime Minister Yingluck Shinawatra instructed all units to closely monitor the exchange rate and gold prices.

In a separate event, Finance Ministry deputy permanent secretary Pongpanu Svetarundra said the BOT's persistence has resulted in a huge loss to the country, and that this was sufficient reason to dismiss BOT Governor Prasarn Trairatvorakul.

Pongpanu said the BOT's sterilisation process, absorbing excess liquidity on the back of huge inflows, has resulted in accounting losses of Bt600 billion as well as negative impacts on the export sector and asset prices. He said that while the accounting losses would inevitably be absorbed by the government, the strong baht will kill many exporters. If the policy rate is maintained at this level, it could also affect the government's Bt2-trillion investment plan, which will be financed by domestic funds. Pongpanu said that damages are comparable to those witnessed during the "Tom Yam Kung" financial crisis in 1997. Without action, the economy would fall into a crisis and the BOT would be responsible, he said.

DIFFERENCE OF OPINION

"The BOT's credibility is tarnished. If it were a private company, the business would be defunct. This loss can't return to a gain quickly, due to monetary easing in the US, Europe and Japan. Without any action, the baht could hit 26-27 per dollar and this will result in prolonged losses for the BOT," he said.

The BOT, on the other hand, is firm that it is doing its best to neutralise the impacts of capital inflows.

Alisara Mahasandana, BOT senior director for financial markets, said a rate cut would not slow capital inflows, particularly to the bond market, due to Thailand's strong economic fundamentals.

"Bond yields have dropped sharply [due to inflows], but new money keeps flowing in even though our interest rate is quite similar to neighbouring countries'. It is fundamentals, rather, that are at play, as foreign investors are also concerned about the country's rating outlook and default rate. These should carry more weight than bond yields," she said.

In the first quarter, global funds' bond investment reached Bt140 billion, pushing foreign bond holding to Bt850 billion or 12.6 per cent of outstanding bonds. According to the BOT, 60 per cent of the holding is in long-term bonds. The average maturity of bonds held by foreign investors is 4.6 years.

PRESSURE ON CENTRAL BANK

While monetary easing in developed economies, particularly Japan, spurs inflows and boosts the baht against the greenback, Alisara said the baht could weaken if the euro zone's condition deteriorates and the US discontinues easing in light of economic improvements.

Another source of pressure on the BOT comes from the Federation of Thai Industries (FTI), the largest grouping of Thai businesses. The FTI yesterday suggested five harsh measures, including capital controls and a 1-percentage-point cut in the policy rate. Other proposals are to establish an emergency foreign-exchange management mechanism, switching from inflation targeting to exchange-rate targeting, and improving the central bank's sterilisation mechanism. A capital control was proposed that would tax money that enters and leaves the Kingdom in a period of less than three months.

FTI chairman Payungsak Chartsutipol said that because of the cheap dollar, some export-oriented manufacturers have imported raw materials, and this affects local suppliers.

All five measures could be enforced at the same time, but without any action, he said, it is difficult for exporters to quote prices, and this will affect orders in the second and third quarters.

The FTI is seeking a meeting with the BOT governor next week. The BOT has so far refused to implement the measures, but the situation is far different than in January, when the FTI made its first round of requests, said federation vice chairman Vallop Vitanakorn.

Year to date, the baht has appreciated by 6.28 per cent against the US dollar, compared to a 6.10-per-cent appreciation in the Mexican peso, a 1-per-cent rise in the Brazilian real and a 0.16-per-cent gain in the Malaysian ringgit. Elsewhere in Asia, the Indonesian rupiah, Singapore dollar, Vietnamese dong, Philippine peso and Korean won have weakened by 1 per cent, 1.44 per cent, 0.4 per cent, 0.63 per cent and 4.28 per cent, respectively.

The baht fell to 28.89 at 3pm yesterday on fears of intervention. Earlier this month, it touched 28.58, the strongest level since 1997.

While Kittiratt is convinced that lowering the policy rate would deter capital inflows,

BOT Chairman MR Chatu Mongol Sonakul earlier this week suggested BOT to buy more dollar to weaken the baht. Yesterday, Chaoren Pokphand Group Chairman Dhanin Chearavanont said that BOT stands to lose in this fight, as Thailand will continue attracting more inflows. Dhanin suggested the BOT to switch any resources to help the affected.

Yet, former finance minister Thanong Bidaya rushed the central bank to launch an action. He said though price stability is the central bank’s priority, the core inflation of below 2 per cent opens a chance for rate cuts. He suggested the central bank cut the policy rate by 25 basis point at each meeting from now and monitor the impacts on inflows.

He noted that if the policy rate won’t be cut, the central bank needs to launch a new measure. He said that the central bank cannot just buy dollar and shoulder a higher loss.

"Controls could be imposed on activities driven by speculative purposes, to contain excessive gain and bubbles. Yet, controls may be unnecessary. The problem is the policy rate is too high. A lower rate will benefit the business sector. Meanwhile, savers now have other investment alternatives on top of bank savings. The sharp growth in the mutual fund industry shows that savers now are more knowledgeable," he said.


-- The Nation 2013-04-25

[KED]

I trust the current government to handle the Thai baht appreciation as well as they handled the flood: inconsistent and continual misinformation.

[pacman32]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

[Naam]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

it's them aquatic aliens who have taken over. that's why it seems fishy.

[Issangeorge]

It seems to me that all industrial countroes should study Thailand to see what they are doing right and then do the same thing. Of course my feelings are that the economy is all smoke and mirrors and that within five years yhe baht will ne below 40 US perhaps 45.

[Naam]

It seems to me that all industrial countroes should study Thailand to see what they are doing right and then do the same thing. Of course my feelings are that the economy is all smoke and mirrors and that within five years yhe baht will ne below 40 US perhaps 45.

if the economy is all smoke and mirrors why should all industrial countries study Thailand?

[Naam]

It seems to me that all industrial countroes should study Thailand to see what they are doing right and then do the same thing. Of course my feelings are that the economy is all smoke and mirrors and that within five years yhe baht will ne below 40 US perhaps 45.

They are getting away with it because speculators have been burned in the Western meltdown...

...also...does anyone really believe that the powers that be at BOT and such have got a clue about the economy.?..

Fly by night at best...and blame it on the falang if it goes tits up..

frustrated people who have nothing to say usually resort to Thai bashing and complete rubbish out of thin air like "blame it on the Farang".

[kblaze]

The BoT DOES know what it is doing. I hope to God they don't listen to the PT government and Mr. White Lies himself Kittirat. Thailand's fundamentals have strengthened and its positioning, both geographically and economically in the burgeoning ASEAN market is why investors are clamoring to get money into the country.

Furthermore, exports, heavily affected by the baht, actually GREW in March by 4.6% YoY, when consensus expected them to grow only 2.3%.

Funny listening to the PT idiots talk about the BoT running losses when they are apply for 2 trillion baht loans and paying rice farmers 50% above market prices.

[Robert2006]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their

doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,

if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

[khwaibah]

TT rate Bangkok Bank USD 28.99

GOLD 19950

Edited April 25, 2013 by khwaibah

[kblaze]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their

doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,

if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

The THB is appreciating.

Why the heck do you think the most powerful people in the country are having a debate on how to slow it down?

[Robert2006]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their

doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,

if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

The THB is appreciating.

Why the heck do you think the most powerful people in the country are having a debate on how to slow it down?

Really, is that why their talking about it, thanks for the astute observation. It is appreciating because the other countries are devaluing.

[lineofentry]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

it's not complicated, small, weak and ineffectual government/civil service = booming ecconomy

[Baerboxer]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their

doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,

if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

The THB is appreciating.

Why the heck do you think the most powerful people in the country are having a debate on how to slow it down?

They are having a debate because the BOT is not controlled by the government who have a different view on how this should be managed.

As Robert points out the world's major currencies are all weakening - the US$, GBP, Euro and Yen. Speculators are looking for other opportunities. The BRIC's are not attracting all the attention so that attention has to go elsewhere. Australia, Canda, Swiss Franc - all got their pros and cons.

I've spoken to several fund managers in different countries and organizations and asked them why Thailand. Rightly or wrongly they see the fundamentals better for Thailand than its ASEAN partners, and moreover are all desperate to find somewhere to try and generate profits and value increases.

Like all "bubbles" built on and driven by speculation this has the potential to burst.

Thailand, like many third world countries, has to react to all of this without being in a position to really influence the bigger picture. As Robert says, there are no easy answers. But steady experienced hands stand a better chance of navigating through this than politicians driven by political expediencies rather than the long term interests of the nation. Many countries have suffered from knee jerk populist or simplistic reactions to these forces.

[Chao Lao Beach]

Prime Minister Yingluck Shinawatra instructed all units to closely monitor the exchange rate and gold prices.

TT rate Bangkok Bank USD 28.99

GOLD 19950

OK, I get it, this will fix it.

<deleted> does watching the gold price have to do with it?

[jombom]

All of it seems very strange to me. Who exactly is in charge of the Baht??

There's the Government, Finance Ministry, Central bank, and BOT.

It seems nobody is in charge, which is the usual abnormality around here i.e. total confusion.

[detinu68]

The Thai Baht is now at a 16 year record high against the US$.

So this has been going on for a while. The worry is that the appreciation has escalated in recent months.

It's was, and still is, the case that the US and other countries, notably the UK and Switzerland, have been issuing billions of government bonds, in effect "printing money" over the last few years.

The real danger for Thailand is that Japan is now going to do the same but on a scale twice as big as in the US in an attempt to get out of its 10 yr+ deflationary spiral.

Japan is the real heavyweight in these parts. Asian economies will be hit with either an avalanche of cash, inevitably causing inflation and higher interest rates, or, more likely in my view, Japanese investors will sell off their overseas holdings and repatriate their cash to invest in domestic equities, which are already on the rise.

There's not too much that policymakers in Thailand can do about it.

[farang000999]

How much can the Japanese economy grow with the current demographics and cost of living? My wife's best friend has 7 sisters. She has one baby and says that she does not want anymore. All my wife's friends want either none, one or rarely two children. Nobody wants three plus children.

[Colabamumbai]

Yesterday Krung Thai Bank Canadian Dollar 27.57 Bhat, up slightly from Last weekend when I returned from Canada, 26.99. I hesitated to change much. Looking to buy a car and waiting for the rate to return to the 29.00 per dollar level at least if not more...

[CharlieH]

Nice to see it up over 45 to pound this morning.

[stoli]

The biggest problem is that the current Thai government believes they can easily screw around with their new programs, and if they don't work, just switch back and all is well. That is never the case. Now that importers have established ties with India for their rice, even if Thailand gets rid of their inflated prices, there is no reason for the importers to break the ties they have now established with other countries. Same with the baht being allowed to get too strong. If the importers were buying shirts from Thailand, but now forced by economic demands to buy from Cambodia or Vietnam, even if the baht were to depreciate some, why break those new ties that you have and jump right back to Thai goods? The Thai government is playing russian roulette with a bullet in every chamber.

[Markaew]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their

doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,

if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

What makes you think Thailand cares about it's poor any more than the West? The West claims they care about the poor but they don't.

[Markaew]

All of it seems very strange to me. Who exactly is in charge of the Baht??

There's the Government, Finance Ministry, Central bank, and BOT.

It seems nobody is in charge, which is the usual abnormality around here i.e. total confusion.

You must be new to Thailand. What you are saying happens every day here.

[Markaew]

Nice to see it up over 45 to pound this morning.

Which is strange because the pound is not on it's way up. But consistent because the BOT has mostly kept the pound highly valued for a long time. They seem to be more interested in manipulating other currency.

[terryp]

It seems to me that all industrial countroes should study Thailand to see what they are doing right and then do the same thing. Of course my feelings are that the economy is all smoke and mirrors and that within five years yhe baht will ne below 40 US perhaps 45.

They are getting away with it because speculators have been burned in the Western meltdown...

...also...does anyone really believe that the powers that be at BOT and such have got a clue about the economy.?..

Fly by night at best...and blame it on the falang if it goes tits up..

frustrated people who have nothing to say usually resort to Thai bashing and complete rubbish out of thin air like "blame it on the Farang".

Guess Soros is not a farang?

[samran]

All of it seems very strange to me. Who exactly is in charge of the Baht??

There's the Government, Finance Ministry, Central bank, and BOT.

It seems nobody is in charge, which is the usual abnormality around here i.e. total confusion.

You must be new to Thailand. What you are saying happens every day here.

And you don't have a clue.

The BOT is asserting its independence on the matter - and so it should.

The MOF is beholden to its political masters. The last time the politicans had control of the Baht, we had the asian financial crisis.

Whatever pain is being caused by a higher baht (and a central bank rightly refusing to play silly games to manipulte it), the benefit is surely higher than seeing control fall into the hands of a populist government which shows not an ounce of fiscal responsibility.

[detinu68]

Nice to see it up over 45 to pound this morning.

Which is strange because the pound is not on it's way up. But consistent because the BOT has mostly kept the pound highly valued for a long time. They seem to be more interested in manipulating other currency.

The "BOT has mostly kept the pound highly valued for a long time" ????

Sorry but a small economy like Thailand has next to zero influence over the relative strength of pound sterling.

Only global markets or one or more of the big central banks (US Federal Reserve, ECB, Bank of Japan, Swiss Central Bank) or the Bank of England itself can influence the value of the pound.

Edited April 26, 2013 by detinu68

[kblaze]

I still cant understand how a country which is run so badly and is full of corruption at all levels, where 80% live in third world conditions and make it so hard for outside investors to work there, can have such a strong currency.

When other countries have major problems like the floods and political upheavals consistently, their economy takes a major hit..............

Your telling me that the Thai economy has gained almost 50% on many of the worlds biggest over the last 5 or so years......something fishy is definately going on somewhere.

It’s not the Thai Baht appreciating it's the Dollar, Euro, Pound, Yen depreciating. The western central banks are devaluing their currencies by keeping interest rates low and creating money at a rate never seen before in world history.

It’s a difficult situation for Thailand they could lower interest rates, create some Baht and inject it in the economy same as their
doing in the west but that would create inflation here in Thailand and hurt the Thai people especially the poor. However,
if they do nothing their export market will suffer and that hurts Thailand as well.

There are no easy answers.

The THB is appreciating.
Why the heck do you think the most powerful people in the country are having a debate on how to slow it down?

They are having a debate because the BOT is not controlled by the government who have a different view on how this should be managed.
As Robert points out the world's major currencies are all weakening - the US$, GBP, Euro and Yen. Speculators are looking for other opportunities. The BRIC's are not attracting all the attention so that attention has to go elsewhere. Australia, Canda, Swiss Franc - all got their pros and cons.
I've spoken to several fund managers in different countries and organizations and asked them why Thailand. Rightly or wrongly they see the fundamentals better for Thailand than its ASEAN partners, and moreover are all desperate to find somewhere to try and generate profits and value increases.
Like all "bubbles" built on and driven by speculation this has the potential to burst.
Thailand, like many third world countries, has to react to all of this without being in a position to really influence the bigger picture. As Robert says, there are no easy answers. But steady experienced hands stand a better chance of navigating through this than politicians driven by political expediencies rather than the long term interests of the nation. Many countries have suffered from knee jerk populist or simplistic reactions to these forces.

I agree that major currencies are depreciating, but that isn't the only reason for the bahts rise, its not even the main reason. Thailand offers an attractive interest rate and as you mentioned has strong fundamentals. Thus the rise in capital inflows and the resulting currency appreciation.
Look at the dollar, its been strengthening, but not against the baht.
Edited April 26, 2013 by kblaze

[Naam]

It seems to me that all industrial countroes should study Thailand to see what they are doing right and then do the same thing. Of course my feelings are that the economy is all smoke and mirrors and that within five years yhe baht will ne below 40 US perhaps 45.

They are getting away with it because speculators have been burned in the Western meltdown...

...also...does anyone really believe that the powers that be at BOT and such have got a clue about the economy.?..

Fly by night at best...and blame it on the falang if it goes tits up..

frustrated people who have nothing to say usually resort to Thai bashing and complete rubbish out of thin air like "blame it on the Farang".

Guess Soros is not a farang?

Soros used an opportunity and no Thai with economic knowledge would blame him.

[chiang mai]

Nice to see it up over 45 to pound this morning.

Which is strange because the pound is not on it's way up. But consistent because the BOT has mostly kept the pound highly valued for a long time. They seem to be more interested in manipulating other currency.

The BOT has done that, really? That's pretty impressive that the BOT has so much sway over the value of the Pound!