Continued baht retreat takes pressure off BOT

Areepong Bhoocha-oom, the permanent secretary for finance, said that most recent inflows were for long-term investment. He was referring to Bank of Thailand Governor Prasarn Trairatvorakul’s letter of reply to Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong. 

“The BOT data shows that inflows so far this year are mostly destined for the bond market, expecting long-term returns,” Areepong said. “Funds to the bond market are eight times above those to the stock market... 

“Long-term investment is a boon to Thailand. Now, Thailand has to look forward, to handle the future well. Any measure (to control the inflows) must be thoroughly considered as that could affect many investment projects planned by the country.”

The BOT’s data showed that net capital inflows in the first quarter totalled $4.77 billion (about Bt140 billion). So far this month, net bond purchases by foreign investors totalled $2.4 billion. In the first quarter, their net purchases were $9.6 billion, according to the Thai Bond Market Association.

Areepong said on Monday that if the baht hit 28 per dollar, some measures would be imposed. 

But yesterday the baht fell for a seventh day, on concerns of capital controls, to below 29 per US dollar, which was down from its new 16-year peak at 28.56 earlier this month. The year-to-date appreciation narrowed from 7 per cent to 4.3 per cent. 

Members of the Monetary Policy Committee convened yesterday for an economic briefing. It was the first time that the public learnt that Kittiratt had sent a letter to Prasarn, asking for clarification on three points – how would the rate affect capital movement; the impact from “sterilisation” to absorb excess liquidity; and the central bank’s suggestion to the MPC. 

Earlier, Kittiratt sent a letter to BOT chairman Virabongsa Ramangkura, pressuring for a rate cut and calling for the board of governors to take responsibility for the swelling accounting loss incurred by the “sterilisation”. 

In the note of reply, brought to Prime Minister Yingluck Shinawatra yesterday by Kittiratt, Prasarn said that the BOT had no mandate to intervene the MPC’s decision making. He said the baht had appreciated due to inflows to the bond market and expressed concern that a rate cut could lead to more borrowing and an increase in property prices. 

Prasarn explained that commercial banks now control only 40 per cent of property loans, while the rest are extended by other institutions which are not under central bank supervision.

The MPC has left the policy rate unchanged for the previous four meetings at 2.75 per cent. Its next meeting is set for May 29.

Areepong admitted that the “sterilisation” showed the BOT’s accounting loss, but said the figures could not be unveiled.

At the Cabinet meeting yesterday, Kittiratt informed all that the rise of the baht had hit the export sector hard and that it may deter Thailand from achieving the 8-9 per cent export growth target this year, Areepong said. Yingluck also instructed related ministries, particularly Commerce, to devise urgent strategies to help affected business operators.

The weaker baht appears to have cooled tempers down. The Federation of Thai Industries earlier called for drastic measures such as capital controls for short-term inflows and a hefty policy rate cut. However, FTI chairman Payungsak Chartsutipol said after a discussion with the BOT governor yesterday he was pleased with the central bank’s approach to balance economic stability and foreign exchange rates. 

But, he said that if the pace of the baht’s rise quickens, the FTI would seek another meeting with Prasarn before the MPC’s May 29 meeting. He said that if the baht moves beyond 28 to the dollar, exports this year could only grow 4.92 per cent. 

Capital inflows have boosted sentiment and spending in the country. To cash in on increasing demand for property, developers have launched a number of projects. According to the Real Estate Information Centre, about 40,000 residential units were launched in the first quarter of this year and the growth momentum continued in April.

According to Bank of Thailand data, the good news is that in March, commercial loan growth slowed, in line with declining private consumption and investment, although automobile purchases continued to expand well as a result of an order backlog and marketing promotions by car manufacturers. 

Mathee Supapongse, director of the central bank’s Domestic Economy Department, said that the slowdown would help ease “bubble problem”. 

In March, the value of exports rose 4.9 per cent month on month to $20.49 billion, while imports dropped slightly by 0.4 per cent on-month to $18.5 billion.

Meanwhile, tourism grew robustly, with 2.3 million foreign tourist arriving due to an increase in the number of visitors from many countries, notably China and Russia. Tourists from Malaysia dropped, however, as a result of tension in the three southern provinces.