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Central bank takes extraordinary steps to cool off baht

Nov 06. 2019
Central bank governor Veerathai Santiprabhob, centre, announces measures aimed at liberalising capital outflow to stem the baht’s rapid rise in value.
Central bank governor Veerathai Santiprabhob, centre, announces measures aimed at liberalising capital outflow to stem the baht’s rapid rise in value.
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By Wichit Chaitrong
The Nation

The Bank of Thailand has taken unprecedented steps to liberalise capital outflow, allowing residents of the country to take money overseas to invest directly and the domestic trading in gold in foreign currencies.

Central bank governor Veerathai Santiprabhob announced the measures this week as a bid to slow the baht’s worryingly rapid appreciation.

The new measures will come into effect on Friday (November 8), he said.

Exporters will be allowed to park their earnings abroad – up to US$200,000 per invoice, increased from the current $50,000. The figure will rise to $1 million within three months, Veerathai told reporters. 

“This is so exporters can manage their exchange risk better, since they’ll be able to bring their money back when exchange rate is more favourable for them, or they could use their foreign currency for their businesses abroad,” he said.

Retail investors are allowed to invest up to $200,000 per annum directly in foreign financial assets. Currently they must go through brokerage firms or mutual funds, and even then, only high-net-worth individuals with Bt50 million or more in savings. 

“Those who plan to invest overseas should understand the risks,” Veerathai said. “If not, they are advised to invest via brokerage firms.”

The central bank will also increase the amount of money fund managers can invest in foreign financial assets, from $100 billion a year to $150 billion, he said, though it must be under the supervision of the Securities and Exchanges Commission.

Individuals can take money out of the country more freely – the central bank will no longer apply its “positive list” summarising what’s allowed, but only its “negative list” of what’s prohibited, such as taking money abroad to speculate on exchange rates.

It’s now allowed to transfer up to $200,000 overseas without submitting supportive documents to a commercial bank, a rise from the current $50,000. 

And it’s alright to buy a home abroad in someone else’s name, such as a child or other relative living overseas.

Gold traders are now allowed to use foreign currency in domestic transactions. Veerathai explained that the gold trade has added pressure on the baht because Thai investors sell gold abroad, then bring their earnings back when the gold price rises.

“The baht is seen as a safe haven,” he said, referring to investors buying baht-denominated assets during the global slowdown and market volatility. “And gold traders have pushed the baht up against other currencies.”

Since Thailand is not a target in any international trade war, the baht has been seen as a safe investment, he noted.

The measures are designed to curb the baht’s rapid rise in value, in the past few days to a six-year high against the dollar. Most analysts believe its value will stay around Bt30 per dollar this year but could surpass that level next year or hover between Bt28-Bt29. Exporters would prefer to see Bt32.

Veerathai credited the baht’s rise largely to a high current-account surplus of $26.4 billion in the first nine months of this year. 

Foreign direct investment in the same period was also high, at nearly $8 billion, leading to total inflow of $34.4 billion, whereas the outflow from the stock and bond markets was $3.1 billion. 

“This shows that current-account surplus, not funds flowing out of the financial market, has had the largest effect on the baht’s value,” he said.

Related story:

Bank of Thailand cuts rate to 1.25 per cent

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