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BOT must cut policy rate close to zero to rein in baht’s appreciation


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BOT must cut policy rate close to zero to rein in baht’s appreciation

By The Nation

 

800_63f1ec041e6e10e.jpg?v=1606058584

Graphic Credit: ThaiBMA

 

The latest measures by the Bank of Thailand (BOT) designed to encourage capital outflows would have some impact on the value of the baht but they would not be effective in controlling the Thai currency's rise, said Anusorn Tamajai, a former BOT director and ex-dean of Rangsit University’s Faculty of Economics.

 

' The BOT on Friday liberalised the foreign exchange rate market, allowing residents to freely deposit funds in foreign currency deposit (FCD) accounts, raised the limit for investment in foreign securities and required investors to make bond pre-trade registration.

 

Anusorn said these measures may not be adequate in stopping the baht from appreciating further, as foreign investors had still bought Thai bonds on Friday after the central bank had introduced the new measures.

 

He predicted that the baht would rise beyond Bt30 to the dollar to between Bt28 and Bt29 by the end of this year or in the first quarter of next year.

 

He suggested that the central bank  introduce the yield curb control (YCC) measure in dealing with the exchange rate market.

 

The BOT should target the yield of Thai bonds, for example set the target yield rate of the bond with 1-2 years maturity at 0.5 per cent, 3-4 years maturity at 0.75 per cent and 7-10 years maturity at 1.4 per cent.

 

The central bank could do it via purchasing and selling bonds in the market in order to achieve those targets, he noted.

 

If the BOT controlled the bond interest rates, it would make fiscal policy more effective as consumers would spend more money.

 

It would also reduce the financial cost for consumers and businesses who have bank loans with repayment period between three and 10 years, he assured.

 

To implement YCC, the central bank's Monetary Policy Committee (MPC) has to lower the policy rate to zero or close to zero, he said.

 

Currently, the policy rate is 0.5 per cent and the MPC at its meeting last week left the rate unchanged.

 

Anusorn pointed out that the Thai policy rate remains higher than those of many countries, therefore it has provided incentives for investors to buy Thai bonds and stocks, pushing the baht's value up and hurting Thai exporters.

 

He warned that current market intervention by selling and buying US dollars risked retaliation from the US government which monitors trade partners who have been classified as currency manipulators for unfair trade.

 

Over the last 12 months, Thailand has run a trade surplus with the US of $22.4 billion, and last year Thailand had a current account surplus equivalent to 7 per cent of gross domestic product (GDP). The country also has high foreign currency reserves at 2 per cent of GDP. These conditions bring Thailand under US scrutiny.

 

The high current account surplus has also been blamed for the stronger baht.

 

Source: https://www.nationthailand.com/business/30398391

 

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-- © Copyright The Nation Thailand 2020-11-23
 
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Ever notice the central bankers never tell you specifically who these nefarious “foreign investors” are?  They’ve been hard at work buying Thai bonds in order to push up the Baht.

Willing to bet they don’t come from western countries.  Also willing to bet they hail mostly from one country...

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7 hours ago, scammed said:

ask the brits how to fix the currency rate

 

Silly comment.

 

The ThB is pegged to the weak USD which is on a downward trend and likely not to be the World's reserve currency much longer. US debt is staggering and likely to increase. 

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11 minutes ago, Baerboxer said:

 

Silly comment.

 

The ThB is pegged to the weak USD which is on a downward trend and likely not to be the World's reserve currency much longer. US debt is staggering and likely to increase. 

Not sure about that.  If Baht pegged to USD, it wouldn’t move that much.  Yet it has gained 8% this year, putting pressure on exporters.

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1 minute ago, Isaan sailor said:

Not sure about that.  If Baht pegged to USD, it wouldn’t move that much.  Yet it has gained 8% this year, putting pressure on exporters.

 

Look at the long term trends, over say last 10 years of the ThB against the USD, Euro and GBP.

 

Also, with the strong Thai fundamentals shown in the OP, forex investors see the baht as a safe haven.

 

If I go back to before the 2008 crash I was getting 71 baht for 1 GBP. Even before Brexit that had gone down considerably.

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This is not going to depreciate the Bht even if a negative interest rate as Japan have done with certified borrowers.

The economy is sound except for the tourist industry which at most contributes 14% (we can argue that all we like)

Feel sad for staff but not big developers who have been greedy & over developed (same in the condo market)

Thailand will achieve at least 85% of last years exports which is amazing taken into consideration the huge export increases in $ terms over the last 8 years.

Look up 2019's export figures.

Coupled with many European countries, USA, UK & others being in an absolute mess 

along with massive handouts for unemployment, business aid & hospitals being overrun 

& health systems at bursting point, keeping in mind that the US of A was facing a huge debt even before  Covid,

How possibly can the Baht loose value ???

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5 hours ago, Pib said:

I seriously doubt BOT lowering its interest rates will have much affect on the USD-THB exchange rate....maybe a few tenths of a baht best case.  BOT is going to have to liberalize much more to rein in the baht but I doubt the BOT has the "guts" to do that.  

BOT has been monitoring it since earlier in the year, not achieved anything yet.

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49 minutes ago, hotchilli said:

BOT has been monitoring it since earlier in the year, not achieved anything yet.

Actions speak louder than words.  And so far, mostly bluster from BoT.  They need more factory closings, or significant layoffs, in order to take appropriate actions, I believe.

Edited by Isaan sailor
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