Fetco proposes bond-holding restrictions for foreign investors to tame baht's strength

Fetco chairman Paiboon Nalinthrangkurn said after a discussion yesterday on the baht by its members that they agreed to propose that the government launch measures to curb foreign investors’ speculation on short-term Thai bonds, which drives up the baht.

The baht weakened yesterday to 29.58 against the US dollar. The Thai currency has advanced 3.1 per cent this year, the best performance in Asia. 

“Curbing foreigners’ speculation on short-term bonds will likely solve the problem directly,” said Paiboon, who is also chief executive officer for Tisco Securities. “We do not agree to any measures that will have an impact on confidence in the economy, the stock market and long-term bond investment. Thailand still requires long-term funds to finance its infrastructure.” 

He expects the measure to curb speculation on short-term bonds could be short-term and would suffice to stabilise the baht.

Niwat Kanjanaphoomin, president for the Thai Bond Market Association, said: “Foreign investors hold less-than-six-month bonds worth nearly Bt180 billion. Their holding of short-term bonds is about Bt200 billion. This amount does not benefit Thailand, given the short-term period of investment for returns and currency speculation.” 

Foreign holding of Thai bonds totals Bt870 billion. At the end of last year, foreign holding of short-term bonds amounted to Bt55 billion.

Paiboon said the proposed measure was unlikely to erode foreign investors’ confidence as several countries took it as a solution for currency appreciation. Indonesia found success with this solution in 2011.

Expecting unavoidable capital inflows to the Kingdom for several years due to increased money supply by the United States, Europe and Japan, Paiboon sees no need for a cut in the Bank of Thailand’s policy interest rate. 

Niwat said foreigners who invest in short-term bonds would not care about the rate change, given that the differential with other countries would still be more than 2 percentage points, even if a tax is imposed on interest for gains on Thai bonds earned by foreigners. 

After the US Federal Reserve’s decision on Wednesday to stick with its aggressive monetary-easing policy, the European Central Bank (ECB) on Thursday cut its benchmark rate by 25 basis points to 0.5 per cent and signalled that a further easing might be ahead.

Voravan Tarapoom, chief executive officer at BBL Asset Management, said Fetco’s discussion involved benefits for the whole economy, aiming to solve the currency problem at its root as foreign capital was expected to pour into Thailand for the next few years. 

Charamporn Jotikasthira, president of the Stock Exchange of Thailand, said the ECB’s rate cut did not have much impact on the Thai bourse as most investors were interested in returns, and capital markets in Asia, particularly Thailand, remained attractive for investors.

The SET Index yesterday closed at 1,578.95 points, down 0.64 per cent from Thursday. 

Also yesterday, Federation of Thailand Industries chairman Payungsak Chartsutipol and other FTI representatives submitted to Prime Minister Yingluck Shinawatra five measures to handle the strong baht.

The measures are a cut in the policy rate by 1 percentage point, establishing an emergency foreign-exchange-management mechanism, switching from inflation targeting to exchange-rate targeting, enforcing a capital control (limiting foreign investors from bringing out money within three months from entry date), and improving the BOT’s sterilisation mechanism.

Yingluck said she would consult with the relevant agencies on the FTI proposals, including the BOT, the central bank’s Monetary Policy Committee, and the Finance Ministry. She reaffirmed that she would do her best to coordinate among these state agencies and urge them to reduce the impact of the strong baht on the business sector.

The Industry Ministry will also discuss with the Industrial Promotion Department, the Office of Small and Medium Enterprises Promotion and the Office of Industrial Economics measures to minimise the impact from the baht’s appreciation on small-medium enterprises. The ministry will then propose them to the Cabinet next week. 

“We are very concerned about the continuing strength of the baht affecting the local economy, particularly in the SME sector. So the government must try all possible ways to help them,” Industry Minister Prasert Boonchaisuk said yesterday.