Capital control master plan in effect next week
Play
Bank of Thailand is gradually launching measures under the capital control master plan from next week onwards, which offers relaxation on foreign exchange hedging and hedging-contract unwinding.
According to Pongpen Ruengvirayudh, deputy governor, under the new rule to be in effect until early 2013, all business operators and investors can freely execute such transactions. So far, it has been limited only to exporters/importers.
"We will allow all to unwind their hedging positions. Now, only exporters with forward contracts can unwind the positions. This measure will cover hedging above all transactions like investment and loans. This will ensure greater flexibility in forex management," she said.
Under the master plan, individual investors will also be allowed to invest an unlimited amount overseas. At present, the investment is capped at US$100 million dollar per year.
The central bank will also encourage institutional investors like asset management companies with foreign investment to lower their hedging, to reap possible gain from forex movement. So far, these investors have fully hedged against their investment.
Mobilising investment in baht, the fund companies normally hedge their investment to ensure that their overseas investment quoted in US dollar would not affect the sum in baht term. Without the hedging, they can benefit from extra gain should dollar weaken against baht.
"We will push them towards lower hedging, for a higher return. So far, they have been reluctant to, partly because they lack insights into forex movement outlook. Yet, if they can do this, there's a chance for a higher return. This will also depend on fund managers' ability," Pongpen said.
She said that most of foreign investors in Thailand do not hedge their investment. As the Stock Exchange of Thailand index has spiked 27 per cent so far plus the 2 per cent appreciation in the Thai baht, their investment gain is nearly 30 per cent. Meanwhile, Thai investment is 100 per cent hedged and investors can reap only interest rate differential.
