Govt won't act to halt baht's rise

Currency hits 16-yr high; govt spending will ease pressure on unit, Kittiratt says

Financial authorities yesterday remained adamant that they would not intervene in the foreign-exchange market despite renewed calls for action from the private sector as the baht strengthened to a 16-year high of 29.14 to the US dollar on waves of capital inflows.

"There will be no measure to intervene in the foreign-exchange market," Deputy Prime Minister Kittiratt Na-Ranong said.

Kittiratt, also the finance minister, urged patience, saying the imports that would account for half of the government's Bt2-trillion infrastructure investment plan would balance the forces pushing up the currency.

"The plan should kick off late this year or early next year. Until then, everyone needs to live with the appreciation," he said.

He showed little sympathy for some of the grumblers, saying an ill-advised response by authorities could backfire.

"For those seeking short-term gains, they can't complain when facing losses," he said.

"An unconventional measure will only ruin confidence among the global community," he said.

The Bank of Thailand is the authority in full charge of currency stabilisation, he said. However, the central bank should have lowered the policy rate when the baht was trading above 31 per greenback. A rate cut is the real solution while the government has taken other steps like introducing incentives for machinery imports, he added.

Bank of Thailand Governor Prasarn Trairatvorakul also said there was no need for special remedies despite the "rapid appreciation".

Thailand's economic success story is drawing in funds, while foreign players are skittish about the election in Malaysia and chronic current-account deficits in Indonesia, he said.

The baht matched 1997's peak of 29.14 after advancing 0.8 per cent yesterday, the biggest gain since January 2. The currency is up nearly 2 per cent this month and 4.7 per cent this year, though four other major currencies in Southeast Asia declined this month.

The robust recovery has continued to attract international attention, mostly to the bond market. After net buys of $6.4 billion (Bt186.2 billion) in the first two months, this month foreigners have bought $2.4 billion net of local bonds.

This month alone, foreign net buys of Thai stocks reached Bt8.89 billion after net buys of Bt6.5 billion ($250 million) in the first two months. Worries over the euro zone's future following the Cyprus episode as well as possible forex intervention have weighed on market sentiment in the past three days, after the Stock Exchange of Thailand (SET) Index zoomed to a 19-year high last week. Most Asian stocks yesterday declined amid concern that Cyprus' rejection of a bailout plan shows Europe will struggle to contain its debt crisis.

"The [Thai] economy is very solid and the central bank seems to be quite tolerant with the baht's gains," Kozo Hasegawa, a foreign-exchange trader in Bangkok at Sumitomo Mitsui Banking Corp, told Bloomberg. "But because the pace of appreciation was so fast, the tolerance doesn't mean they won't intervene at all, and we may see some correction soon."

Standard Chartered Bank sees the baht ending the year at 29.75, versus 29.10 forecast by Nomura. Kasikornbank has 28.50 in mind.

Thiti Tantikulanun, head of capital markets at KBank, admitted that the baht yesterday was not dancing in line with regional currencies. He attributed that to massive dollar sales by exporters, who fear further appreciation, which would reduce their income in baht terms.

"That's on top of inflows to the bond market, which is the major driver behind the appreciation," he said. While dollar sells will continue, he discounted the baht trading above 29 in the short term.

Vallop Vitanakorn, vice chairman of the Federation of Thai Industries, said that if the central bank announces no measure this week, the FTI will seek a meeting with its governor.

Kasikorn Research Centre estimates that every 1-percentage-point rise in the baht would shave 0.30 percentage point off of economic growth.

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Article source: http://www.thethailandlinks.com/2013/03/21/govt-wont-act-to-halt-bahts-rise/