The market should decide baht value: Govt

He said Prime Minister Yingluck Shinawatra had instructed economic agencies such as the Bank of Thailand (BOT) to handle the baht’s value carefully.

“I believe concerned agencies will use extra caution, because we have already learned a lesson that blocking fund flows affects investors’ confidence. If there is no alternative, the measure may be necessary, but we do have other alternatives – for instance helping investors to seek opportunities in new markets such as in Japan,” said Kittiratt, who is also deputy prime minister.

The government on Friday met with BOT Governor Prasarn Trairatvorakul to discuss the strengthening of the baht and its impact on the economy.

After the meeting Kittiratt said the government has yet to come up with measures to curb the trend, but would closely monitor the situation. Although the government believes reducing the policy interest rate may cause the baht to depreciate, it has agreed that further research is needed into possible adverse effects of such a cut. 

Kittiratt said the government would allow the market mechanism to decide the value of the baht, saying the strengthening of the currency is a result of business confidence in the Thai economy, which is expected to grow 5 per cent this year.

He was speaking via the weekly TV programme, “The Yingluck Government Meets the People”.

The minister admitted that the government has been concerned about the stability of the baht and did not want to see it strengthening or weakening to unmanageable levels for importers and exporters. He added that the government has not been complacent about the recent strengthening of the baht, but has to comply with the Bank of Thailand Act and respect officials and committees in charge of the country’s financial and monetary policies.

Kittiratt had earlier been outspoken about his wish to see the BOT reduce the interest rate, which the government believes is too high, causing foreign inflows and pushing up the value of the baht.

He said yesterday that he has not pressured the BOT or called any urgent meetings of its Monetary Policy Committee.

“The country’s economy is strong and we are making sure that the economy is growing to its full potential, and that economic policies will not bring about special benefits to a particular sector and adversely affect another. In other words, or in layman’s terms, our duty is to manage the overall economy and balance out happiness and unhappiness.”

He said state economic agencies had earlier predicted the country’s economic growth would hover above 5 per cent, but if the government could not solve the strengthening of the baht, growth may be less than targeted.

Kittiratt said the country has allowed the market mechanism to dictate the value of the baht since it was floated in 1994. Since then, foreign funds have flowed into the country because Thailand has enjoyed trade and current account surpluses, causing the baht to strengthen from 50 per US dollar to 30 per dollar.

He said later the country saw a balance of exports and imports, but the baht continued to strengthen because foreign funds kept flowing in – not for direct investment but to invest in financial instruments. He said the world’s major economies such as the US and Japan have been implementing financial policies to weaken their currencies by pumping more money into their financial systems.

Former finance minister Korn Chatikavanij posted a message on his Facebook page praising Kittiratt over his stance on the value of the baht. Korn said investors are not afraid of interest reductions, but of other “measures”. The fact that the BOT insists on not reducing the interest rate, but has sent a signal that it is concerned about the strengthening of the baht, has caused currency speculators to interpret that as meaning that the agency may resort to “other measures”. 

“This is the reason the baht has depreciated over the past two days,” he wrote.