BOT sees only slight impact on baht after surprise Swiss move

While the SNB’s decision is unlikely to have much impact on emerging-market currencies, as the Swiss franc is not widely used, there could be a short-term effect and some concern among investors, BOT Assistant Governor Chantavan Sucharitkul said yesterday.
The baht has appreciated to some extent this past week, following the safe-haven Japanese yen, she said, adding that the Thai central bank would monitor money markets and capital movements closely.
The Thai unit strengthened 0.6 per cent over the course of the week, and by 0.3 per cent yesterday to 32.662 per US dollar, according to Bloomberg. It touched 32.593 earlier in the day, the strongest level since November 4.
Switzerland’s central bank removed the cap of 1.20 Swiss francs per euro on Thursday, and also reduced the interest rate on sight deposits. The franc appreciated by as much as 41 per cent against the euro after the SNB’s move.
While the Swiss franc could initially be volatile and overshoot against the euro, it could fall to 1 per euro, the rate before the cap was lifted.
Pipat Luengnaruemitchai, assistant managing director of Phatra Securities, said: “The SNB may not be affected by the European Central Bank’s likely quantitative easing, with the latter possibly soon printing money. If the franc continued to be capped against the euro, there would be a large amount of capital flowing into Switzerland. And then the SNB would have to protect the Swiss currency.”
The SNB’s decision could help prevent overheating in the Swiss economy and slow down capital inflows, while the yen – as a safe haven – appreciated, he added.
In the period ahead, both Japan and the euro zone look likely to have quantitative-easing programmes, and this could lead to a currency war, he warned.
“And other countries will start to question what to do next. From this point, capital is expected to move into appreciating currencies with high interest returns. There’s an opportunity for capital to move into Thailand,” Pipat said.
In response to a question on whether Thailand should enter a currency war, he said there would be advantages and disadvantages. If the country did nothing, the baht could be expected to continue appreciating, but if some developed countries cut interest rates to lessen the attraction for capital, the Kingdom may then need to join the war.
The Thai authorities may have to ponder whether to cut the policy interest rate, given the risks of a higher level of household debt and likely bubbles in some assets, he added.