Govt action likely if baht hits 28 to US$

Thailand may take action to tame capital inflows if the baht advances to 28 per US dollar, but they would not be any different from steps implemented by other countries, which have also attracted huge inflows after the monetary easing in developed economies, Areepong Bhoocha-oom, permanent secretary of the Finance Ministry, said yesterday.

The baht closed at 29.29 per US dollar, up from 28.58 earlier this month, which was the highest level since 1997.

Somchai Sajjapong, director-general of the Fiscal Policy Office, said the ministry had asked the Bank of Thailand to submit measures capable of holding down the baht if it chooses not to cut the policy rate. The policy rate has stayed at 2.75 per cent since October 2012.

Today, the Monetary Policy Committee will hold a special meeting ahead of the regular one scheduled for May 29. Most MPC members have insisted that a lower rate will be ineffective in diverting capital inflows.

As a comfort to the Bank of Thailand, the baht yesterday was traded above 29 per dollar for the first time in weeks. At 29.25 in the morning, it weakened 0.41 per cent from Friday, limiting this month’s gain to only 0.14 per cent. 

It also depreciated against the Japanese yen by 0.53 per cent from Friday, which narrowed this month’s gain to 4.06 per cent from more than 8 per cent last week. 

Finance Minister Kittiratt Na-Ranong, BOT Governor Prasarn Trairatvorakul and other officials discussed the baht on Friday. 

“We don’t know which measures the BOT will propose [to slow the pace of the baht]. But a tax imposed on foreign capital inflows is too tough,” Somchai said. 

The International Monetary Fund yesterday also urged Asian policy-makers to stand ready to respond – early and decisively – to overheating risks in their economies stemming from rapid credit growth and rising asset prices.

Growth is set to pick up gradually during the year and inflation is expected to stay within central banks’ comfort zones. Greater exchange-rate flexibility in the region would play a “useful role” in curbing overheating pressures and coping with speculative capital inflows, it said. 

The baht, which has recently appreciated, has started to drag down the economy, particularly exports. March exports expanded 4.3 per cent year on year, but shrank 4.5 per cent from the previous quarter. 

The FPO expects this quarter to produce clear and sharp evidence of the baht’s potential to hamstring the economy. Businesses have started revising their operating plans, given their missed estimate of the baht at 30-31 per dollar.

For the whole year, Somchai projects consistent economic growth, however, there were signs of a slowdown in manufacturing, consumption and investment. The FPO’s growth forecast is 5.3 per cent in 2013, with estimated export growth of 10 per cent per quarter for the rest of this year. 

First-quarter value-added tax collections increased 6.9 per cent year on year, compared with an 18-per-cent rise in the prior quarter. 

Machinery imports for construction expanded 2.6 per cent on year and contracted 5.6 per cent on quarter. Tax collected on property transactions surged 32.5 per cent on year but dipped 5.4 per cent on quarter.

In manufacturing, the production index rose 2.9 per cent on year but fell 2.8 per cent on quarter. 

Somchai said the global economic recovery, higher liquidity from the quantitative easing of other countries and the baht’s movements also needed close monitoring.