BOT receives foreign exchange warning

"If we leave it to the fundamentals and we are more patient, the baht will be weaker by itself in the next five years from the increase of imports since the rate of investment will eventually increase as machines will expire and the private sector has practically not invested in the past eighteen years. Public investment is also increasing," she said.

Thailand is carrying a current account surplus of US$2.127 billion as of May 2015 and the country is a net creditor with lending worth around $190 billion with a government debt of around $140 billion (46 per cent of the $373.8 billion gross domestic product).

The country has a foreign exchange reserves worth $160.274 billion as of June, 2015, and it is a net importer of oil where the global price has dropped by 50 per cent to around $55 per barrel and expected to be at this level for a while from the increase in supply in the United States.

"I am personally concerned and surprised about the central bank’s growing usage of foreign exchange rate as one of the monetary targets since it is costly and risky and we might be under the control of the market instead of being in control of our own rate," she added.

Her call came after the BOT’s Monetary Policy Committee (MPC) provided the depreciation of the Thai baht as one of the reasons why the committee has decided to consecutively cut the policy interest rate in March and April this year.

As a result, the baht has been trending down since the MPC’s decision and the currency is currently heading towards a six-year low from the strengthening of the US dollar and foreign speculation that BOT will decide to cut the policy interest rate once again at their meeting on August 5.

The baht was trading at Bt32.835 per US dollar on April 29 (the day of the consecutive cut) before trending down to closed at Bt34.895 last Friday on July 24.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries, who has been advocating for the baht to be weak to help exporters since the beginning of the year last week expressed his concern that the baht is depreciating too fast and it could hurt the country’s financial stability and further worsen the private sector’s sentiment to invest.

Usara explained that Thailand is already showing our hand since even though we are a net creditor but there is only around $50 billion left to play with ($190 billion credit against $140 billion debt) against baht speculators, who together have much more capital and they know that the country will not allow its debts to trump its reserves.

"We can start to play with $50 billion in hand but later on we will be under the control of the speculators because they will come with collective hands and their character is to keep on playing, they will not stop, so the best way is to keep to the fundamentals and keep ourselves healthy," she said.

"Fast or slow the baht will weaken from the increase in imports but slower will be better for us in the long run since we need to invest and quickly weakening the baht would mean that investing will be more costly," she added.