I am not too surprised that the BOT has come out saying that they are taking measures to prevent the THB from strengthening versus the USD, and I have found it amusing that Dr. Somkid comes out saying that the strengthening THB is inline with regional currency movements because this simply isn’t the case. In the past two years the THB has strengthened far more than the MYR, SGD, PHP and IDR. Talking with a friend yesterday the same discussion over the currency emerged and in the end I thought, if you were a fixed income manager in this part of the world, which country provides the best risk/return for sovereign bonds? Singapore – pegged to the USD, Malaysia – if you bought the bonds 2 years ago the currency alone would’ve killed you and Person of interest #1 is still PM, Indonesia – hah right, Philippines – hah – yeah right, Taiwan – hmmm…Japan- possible? S. Korea – crazier politics and a worse balance sheet than Thailand, so when you look at things on a relative basis Thailand has “stability”, a strong current account surplus, the likelihood of interest rates increasing anytime soon is low, a domestic banking system that keeps capital within the country, aging demographics, etc etc these are all reasons the currency strengthening.
Anyways here’s a few news articles all BOT related that came out in the past few days
Interest rates to remain at current levels
A significant policy rate cut is needed if policymakers want to see a rapid increase in inflation, but it would build up financial fragility in the future as search-for-yield behaviour will cause higher under-pricing of risks, he said.
“The need to further ease monetary policy is reduced,” said Mr Veerathai.
“Moreover, a policy rate cut may have a negative impact on household savings in the long run, reflected by the high ratio of households whose savings for retirement are insufficient, and that trend is on the rise.”
The MPC has kept the policy rate on hold near a record-low 1.5% since April 2015.
The next policy rate call has been scheduled for Feb 14.
Sad attempt preventing the THB from strengthening
The Bank of Thailand (BoT) has increased the size of the maximum international money transfer allowed each customer for non-commercial bank business from 200,000 baht per day to 800,000 baht per day in a move to curb the strong baht.
Vachira Arromdee, assistant governor for financial markets operations, confirmed the increase in the allowed daily international money transfer for payment for goods and services took effect on Jan 12, Post Today reported.
Comment: This is a bit sad…you can now transfer 800k baht a day…ok…
Sad attempt at accusing financial institutions
The central bank has found that some financial institutions’ behaviour could indicate involvement in baht speculation through heavy transaction volume, said Bank of Thailand governor Veerathai Santiprabhob, who added that such practices have been done in favour of customers who may be speculating in baht.
He said the speculative activities were unlike the ones in the past that prompted the central bank to require financial institutions to monitor and report the activities of non-resident (NR) accounts.
Each foreigner who puts money in a non-resident baht account (NRBA) is prevented from holding the outstanding balance in all accounts opened at domestic financial institutions at more than 300 million baht at the end of day.
An NRBA, with the exception of a fixed account with a maturity of six months or longer, normally offers no interest to account holders.
The NRBA and the non-resident account for securities (NRBS) are among the central bank’s measures to prevent foreigners from speculating in baht.
Other measures include a restriction on baht liquidity, curbing capital inflows and non-deliverable forward (NDF) — similar to a regular forward FX contract but not requiring physical delivery of the designated currencies at maturity.