Prasarn Says Baht Measures Appropriate, Doesn't Rule Out More Inflow Curbs

Bank of Thailand Governor Prasarn Trairatvorakul said existing measures to curb volatility in the baht are appropriate, though he didn’t rule out using additional tools if the currency’s appreciation accelerates.

“What we are using now is appropriate in the current situation,” Prasarn said at a briefing in Bangkok today. “But I can’t say we won’t do anything. We are quite flexible and we will try to curb volatility as much as we can. We have prepared other measures and will see whether we will use them or not.”

The baht rallied for a fifth month, the longest stretch since 2008, boosted by trade inflows and foreign demand for the country’s stocks and bonds. Thailand this month scrapped a tax exemption for foreign investors in domestic bonds to slow capital inflows that have pushed the currency to a 13-year high.

“The Bank of Thailand is willing to allow the baht to appreciate in line with regional currencies and is committed to limiting volatility,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “With a strong current account surplus and rising inflows into the equity market, we continue to expect the baht to appreciate in coming months.”

The baht rose 1.6 percent this month to 29.98 per dollar as of 3:35 p.m. in Bangkok, according to data compiled by Bloomberg. The currency declined 0.1 percent today. It has rallied 11 percent this year, the best performance among Asia’s most-traded currencies excluding the yen. The baht will likely end the year at 30 per dollar and appreciate to 29 by end-2011, Bajoria said.

Exporters Must Adjust

Prasarn urged Thai exporters to adjust to the realities of a stronger currency.

“Thai exports can no longer rely on cheap labor and a weak baht,” he said, in his first press conference since taking office at the start of October.

Thailand’s current account surplus widened to $2.77 billion in September from $280 million in August due to rising exports and recovering tourism, the central bank said. Exports rose 21.8 percent to a record $17.96 billion last month.

Prasarn said he didn’t see inflation as an immediate threat, and the central bank’s monetary policy will be “flexible.”

The Bank of Thailand last week refrained from a third straight increase in its benchmark interest rate, citing “uncertainties” in the global economy. The central bank yesterday raised its economic growth forecast this year to as much as 8 percent, the highest in 15 years, and Moody’s Investors Service revised the nation’s credit rating outlook to stable from negative, citing the strength of the recovery.

Interest Rate May Rise

“Local interest rates are adjusting to a normal level,” Prasarn said. “Inflation doesn’t have immediate pressure. But there is a risk that core inflation will accelerate to the upper end of our target next year.”

The central bank on Oct. 20 held its benchmark interest rate at 1.75 percent after raising it in July and August, joining counterparts in Malaysia and South Korea in pausing after raising rates earlier this year.

“The probability of a rate hike at the Dec. 1 policy meeting has declined significantly,” Barclays’s Bajoria said in a research note today. “With inflationary pressures likely to rise only in 2011, and given that it expects growth to moderate in the second half of 2010, we believe the central bank is likely to take a gradual approach to policy normalization.”

Exports Surge to Record

Thailand’s current account surplus widened to $2.77 billion in September, the central bank said today. The measure comprises the difference between exports and imports of goods and services, investment income and remittances. Trade makes up about 70 percent of the current account, and tourism contributes most of the service industry’s 30 percent component.

Exports gained 21.8 percent after rising 23.6 percent in August. Imports rose 15.7 percent last month, and the trade surplus widened to $3.24 billion, compared with $852 million in August.

“We may see the baht strength impact exports next year as most exporters already booked orders for this year,” central bank Director Mathee Supapongse said today.

Manufacturing output rose 8.1 percent from a year earlier in September after a revised 8.4 percent in August, the central bank said, citing data from the Office of Industrial Economics.

The central bank yesterday forecast exports this year will grow between 25.5 percent and 28.5 percent, before slowing to as much as 14 percent next year. GDP growth will also moderate to as much as 5 percent in 2011.

There is no sign of an asset-price bubble in Thailand’s property market, according to the central bank.

“But we are cautious, as we don’t want it to happen,” Prasarn said. “There is the possibility that it can happen when lots of capital flows in and interest rates are low, so we have to be careful.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net; Chris Anstey at canstey@bloomberg.net

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