Containers are loaded on to cargo ships at Bangkok Port. Thailand is unlikely to achieve its export-growth target of 8-9 per cent this year, with the central bank lowering its forecast to 7.5 per cent because of the strengthening of the baht, which is the
Move aimed at balancing capital flows; baht halts climb for now
The Bank of Thailand has come up with another measure to balance capital flows, which, coupled with the unsubstantiated report of a levy on short-term bond investment, helped contain the baht's advance.
"In the US there are 50 states, but the central bank can invest only in US Treasuries," Charnchai Boonyaritchaisri, an assistant governor and secretary of the board of governors, said yesterday after the board allowed the central bank to invest its foreign reserves in US state bonds.
Most of Thailand's foreign reserves, which with forward positions stood at US$201.2 billion (Bt5.857 trillion) as of April 12, are invested in government bonds, gold and deposits at the International Monetary Fund.
The central bank will need some time to study such factors as the credit ratings of eligible state bonds before investing in them, he said.
The BOT has come under pressure to launch actions to weaken the baht, as the peak gain of 7 per cent severely hurts the export industry. The baht yesterday dropped the most in more than a year after the central bank's announcement, limiting the year-to-date surge to 4.9 per cent.
In the morning, the unit also weakened on news that short-term bond investment would be taxed. The currency slipped 0.8 per cent, the most since March 2012, to 29.15 per US dollar as of 3pm, after touching 28.56 on April 22 and April 19.
A BOT source said the rumour about the levy was groundless. Besides, it would require the Finance Ministry's approval. Finance Minister Kittiratt Na-Ranong also denied the report, saying such a control was not part of the discussion with the central bank on Wednesday.
Somchai Sajjapongse, director-general of the Fiscal Policy Office and a member of the central bank's board, said it was not the right time to impose a levy, as other options were still available.
Harsh action
"Asked if a harsh action would be enforced, I would say none, as its disadvantages outweigh the advantages," he said.
Bandid Nijathaworn, chairman of the Thai Bond Market Association, said authorities should discuss with the association the potential impacts of such a levy, if they are serious, to ensure effectiveness and sustainability.
Foreign investors mostly buy long-term bonds, mainly because of the country's economic growth, he said.
Today, another discussion on the baht is scheduled by government units. Commerce Minister Boonsong Teriyapirom will also meet with the joint standing committee of the private sector, comprising Thailand's three most powerful private organisations - the Board of Trade of Thailand, the Federation of Thai Industries and the Thai Bankers Association. Their proposals would be submitted to agencies including the Finance Ministry and the BOT.
Next month, Thai trade representatives will convene to discuss the export outlook.
Boonsong admitted for the first time that exports might expand less than 5 per cent this year because of the baht's appreciation. The target is 8-9 per cent to between $250 billion and $260 billion.
According to the ministry, for every Bt1 of appreciation against the dollar, export income will be shaved by Bt260 billion.
"The appreciation of Bt2 has already cut income by Bt520 billion. GDP [gross domestic product] will definitely be hit, as exports contribute 70 per cent of GDP," he said.
After a possible 4.26-per-cent contraction in exports last quarter, orders this quarter may be hit hard.
Concrete steps are necessary to rein in the baht, as it has moved up sharply against only 1 per cent for the currencies of competing countries, he said.
Ford Motor executives lodged complaints on the strong baht with the prime minister's adviser, Olarn Chaipravat. The company has an assembly plant in Thailand that exports vehicles to many countries.
Given consistent baht appreciation since late 2012 to 28.63 per dollar as of April 22, exports of major agriculture and agricultural products suffered damage worth about Bt7.69 billion or 4.28 per cent of the total damage of the agriculture and agricultural product group.
Major agriculture and agricultural products include fishery products, fruits, chicken meat, rice, natural rubber and tapioca.
Charuk Singhaprecha, director of Kasetsart University's Office of Agricultural Economics Foresight Centre, said public and private agencies should cooperate in currency risk management to relieve impacts through the promotion of new markets in the region or the Middle East.
The 7.44-per-cent rise in the baht has dragged agriculture and agricultural-product exports 3.12 per cent behind 2012 levels.
The centre urged the government to add value through processing and reduce costs for agricultural products to meet standards and demand in the country and overseas.
Authorities should accelerate proper agricultural economic zoning with regard to soil, types of crops and irrigation systems, the centre said. People should also be encouraged to consume domestic agricultural products instead of exports.
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Article source: http://www.thethailandlinks.com/2013/04/26/bot-can-invest-in-state-bonds/
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