Thailand Will Curb Excessive Baht Moves, Won't Fight Trend, Abhisit Says

Thailand will prevent any excessive volatility of its currency without moving against the market trend, Prime Minister Abhisit Vejjajiva said.

“We have learnt an expensive lesson before,” Abhisit told reporters in Bangkok today, without elaborating. “All Asian countries have the same problem with strengthening currencies.”

Thailand’s currency climbed to 31.31 a dollar earlier today, the strongest level in more than two years, after the central bank raised borrowing costs for a second month this week. The Bank of Thailand said Aug. 25 interest rates are “on an uptrend” and that it’s “not concerned” that higher rates will attract capital inflows and pressure the baht to rise.

The government’s economic advisory body earlier this week urged the central bank to “be careful to make sure monetary policy won’t affect rising investment,” saying higher interest- rates may attract capital inflows, strengthen the baht and hurt export competitiveness. Commerce Minister Porntiva Nakasai said last week the Thai baht’s strength is a “risk” to the country’s overseas sales, and the central bank should “take care” of the currency.

The central bank should manage the currency as well as inflation, Abhisit said today. “I think the central bank will be careful in raising the interest rate.”

The Bank of Thailand raised its benchmark rate by a quarter of a percentage point to 1.75 percent on Aug. 25. The rate will climb to 2 percent by the end of the year, according to the median forecast of 12 economists surveyed by Bloomberg News, with one predicting as much as 2.25 percent.

Exports Climb

The country’s exports jumped 46 percent in June from a year earlier, the most in more than 18 years, before easing to a 20.6 percent pace last month in line with cooling global demand. Thailand is a manufacturing base for companies including Toyota City, Japan-based Toyota Motor Corp.

Finance Minister Korn Chatikavanij said in Singapore today the baht’s strength will have a “marginal” impact on exports. Central bank Deputy Governor Bandid Nijathaworn said yesterday Thai companies can manage the current movements in the baht.

Southeast Asia’s largest economy after Indonesia grew 9.1 percent in the second quarter as exports countered the impact of political clashes that killed at least 89 people. The central bank expects the economy to expand as much as 7.5 percent this year, which would be the strongest pace since 1995.

Growth Outlook

Economic growth will slow in the second half of 2010 in line with the cooling global economy, Abhisit said. Still, growth for the whole year may be more than 7 percent, he said. That’s more than the finance ministry’s June forecast of as much as 6 percent.

Bandid said yesterday “the reduction of monetary accommodation is necessary to make sure the economic recovery is sustained,” as the rebound will lead to an acceleration in inflation. The growth momentum may continue in the second half of the year as export orders are still at a satisfactory level, he said.

Thailand’s inflation accelerated in July, with consumer prices rising 3.4 percent from a year earlier after climbing 3.3 percent in June.

The central bank will be “cautious” in its monetary policy, and is “monitoring the U.S. economy,” Bandid said. Growth in the world’s biggest economy is expected to slow in the second half, which will affect the global recovery, he said.

Capital Flows

Risk aversion may spur more capital flows to Asia, and the region has seen “continued capital inflows” in the last two to three weeks, Bandid said. For Thailand, the funds went into both stocks and bonds, he said.

“Speculation happens from time to time,” Abhisit said. “Sometimes on stocks and sometimes on the currency. The Bank of Thailand and the Securities & Exchange Commission have to take care of that. Still, it’s not unusual yet even though capital flowed in a lot on some days.”

The baht has climbed the most against the dollar among Asia’s most-traded currencies this month as overseas investors bought $370.6 million more Thai shares than they sold through yesterday. Thai stocks are still among the cheapest in the region and are “under held” by foreign investors, Korn said.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net

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