Strong baht seen as economic risk

Currency poised to appreciate further

- WICHIT CHANTANUSORNSIRI NAREERAT WIRIYAPONG PHUSADEE ARUNMAS

The baht is excessively strong, appreciating beyond what Thailand's economic structure can handle, says caretaker finance minister Ekniti Nitithanprapas.

According to Mr Ekniti, the baht's strengthening stems largely from the US Federal Reserve's decision to cut interest rates, which resulted in increased capital flows into Thailand.

The baht has appreciated beyond the level Thailand's economic structure can reasonably handle, as it is driven by net exports, he said.

The Thai currency recently reached its highest level against the US dollar in more than four years.

"The current baht volatility is something Thailand's economic structure is not prepared to accommodate," said Mr Ekniti, adding he made this point in discussions with the Bank of Thailand.

In addition, he said he issued policy directives to state-owned enterprises that rely on imports to accelerate their import activities.

The Public Debt Management Office was instructed to speed up the repayment of foreign currency-denominated debt in order to exert pressure and prevent further baht appreciation.

In a related development, the Bank of Thailand issued a statement yesterday indicating it instructed financial institutions to tighten scrutiny of forward foreign exchange selling transactions by gold traders, as such transactions could increase the volatility of the baht.

Financial institutions are required to request supporting documents for gold sales with overseas counterparties from gold shops for every transaction.

In addition, billing documents and gold shipment declarations must be submitted within two business days from the date the gold shop delivers foreign currency, to ensure the foreign exchange sales arise from genuine gold exports.

The central bank is soliciting public feedback on proposed revisions to foreign exchange control regulations.