Korn warns against setting predetermined rate for baht against US dollar
Former finance minister Korn Chatikavanij on Thursday advised the government against setting a target for pegging the baht against the US dollar, warning that doing so could cause a financial crisis.
Korn said the current slide of the baht, caused by a wider gap in policy rates of Thailand and the US, was a problem but not a crisis yet.
On Thursday morning, the baht slid further from 37 to 37.2 to the US dollar and continued to drop to 37.31 in the afternoon.
In his Facebook post, Korn said the US Federal Reserve (Fed) had steeply raised its policy rate by another 75 basis points on Wednesday to 3.0-3.25 per cent.
Korn said the US policy rate was the highest since the "Hamburger Crisis" in 2008, widening the gap between Thailand’s policy rate and that of the US to almost 3 per cent.
Korn said the US dollar had appreciated against the baht and other currencies because the market expected the Fed to raise the policy rate by another percentage point within this year.
“This is a problem, but not a crisis,” Korn wrote.
“A crisis will happen if we declare that we will defend the baht by setting an exchange rate target against the real market situation, such as 35 baht per dollar or any target.”
Korn wrote the post a day after acting Prime Minister General Prawit Wongsuwan confirmed on Wednesday he had made a suggestion during the weekly Cabinet meeting on Tuesday that the baht should be valued at 35 baht per dollar.
Korn said the gap in Thai and US interest rates would unavoidably affect the baht’s value until the US economy slows down.
Korn said he expected the US economy to slow down next year at the earliest.
“Once the US economy slows down, we will be benefited from declining prices of oil and consumer goods. By that time, the baht will appreciate automatically – especially if our current account improves to positive territory and if our revenue from tourism rises,” Korn said.
“Don’t cause panic by saying that the baht must be valued at this or that. Although the baht is valued at 37 per dollar, it will not cause a crisis like the Tom Yam Koong crisis because we have high foreign exchange reserves and we can handle public debt.”
Korn added that the government should not be worried about the baht’s value for now but should focus on helping economically vulnerable groups who have to shoulder high cost of living, and should help prevent debtors from being blacklisted or else they would have no chance even when the country’s economic situation improves.