Central bank urges SMEs to hedge forex risk
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The Bank of Thailand has suggested that small and medium-sized enterprises hedge foreign-exchange risk to protect themselves from currency volatility, Assistant Governor Pongpen Ruengvirayudh said yesterday.
Thailand yesterday launched trading in US dollar futures.
However, dollar futures might create an opportunity for currency speculators, as they are not required to put up collateral.
Also, commercial banks might not be willing to deal with small businesses looking to hedge currency risk through dollar futures, as their US-dollar revenue is small, she said.
Pongpen said the BOT would reconsider the request of some brokers that the central bank raise the daily contract maximum from 5,000 to 25,000, adding that it wants to wait and see whether investment through US-dollar futures leads to speculation.
“The volume of their US-dollar futures trading might be small to begin with, but having a hedge tool will help [small] enterprises manage risk by themselves. Dollar futures, however, do not necessarily mean currency volatility will be significantly lowered because we expect there will be speculation,” she said.
The volatility rate of the baht against the US dollar stands at 4 per cent, in line with global economic movements.
The BOT rarely intervenes in the forex market, believing currency trades should follow the market mechanism. Therefore, enterprises should hedge forex risk by themselves through dollar futures or fixed forward contracts with commercial banks, the bank believes.
The dollar futures which began trading\\yesterday attracted 3,429 contracts, lower than the Thailand Futures Exchange (TFEX)’s target, due mainly to the volatility in the US and the European economic slowdown.
Kesara Manchusree, managing director of the TFEX, said yesterday that trading volume will gradually increase once investors see the benefits of the service.
