US fiscal cliff, Asian leadership changes a concern for baht

BOT senior director Alisara Mahasandana said that despite an easing in the debt crisis in Europe, risks remained from several euro zone countries’ belt-tightening, which could result in their economies slowing down.
As to the US fiscal situation, if tax measures worth about US$600 billion (Bt18.37 trillion), or 4 per cent of US gross domestic product, are not extended beyond the end of this year, the US economy could be adversely affected.
“The market and the central bank expect this issue to be reconciled. Several tax measures may be extended. There could be an impact on only 1.4 per cent of US GDP. If the US economy continues to grow with more confidence, there will likely be more expenditure for investment,” she said.
Another potential impact factor for the baht is the prime ministerial election in Japan, which is scheduled for December 16.
Based on a survey in Japan, Liberal Democratic Party leader Shinzo Abe has the best opportunity to lead the next government.
Abe has ruled out further easing of monetary policy in Japan, which has to a degree been priced in by money markets, reflecting a weakening of the yen.
China’s new leadership, which will see the new premier Li Keqiang officially take over in January, is another issue requiring monitoring in regard to his political and economic policies, said Alisara, adding that the markets expect the policies to be little changed from those pursued by Li’s predecessor.
“More foreign capital is likely to flow into Thailand consistently due to these factors, [particularly] the global economic slowdown and monetary-easing policies in several countries. Money-market volatility could remain. There could be both risk-on and risk-off situations, as before,” she said.
However, Thailand is expected to receive less of an impact than two years ago due to its sounder economic fundamentals and increased investment overseas, she added.
The BOT has the tools available to cope with a capital inflow, said the central bank’s senior director.
One measure is to attract foreign capital for long-term investment through the bond markets with a greater variety of long-term instruments.
Another tool is to provide the private sector with appropriate knowledge on exchange-rate risk management, so that it can handle currency volatility more effectively.
In the first nine months of the year, most of the foreign capital flowing into the Kingdom went into the bond market, to the net tune of $9 billion. Another $2 billion was destined for the stock market.
Thai parties, meanwhile, invested about $9.3 billion overseas in the period, higher than the $8.2 billion invested abroad throughout the whole of 2011.
Chantavarn Sucharitakul, assistant governor of the central bank, said the baht had appreciated by 3.3 per cent in the third quarter, in line with the movement of its regional peers, due mainly to more foreign capital entering the bond and stock markets.