Thailand's Central Bank Willing to Allow Currency Gains, Atchana Signals

The Bank of Thailand is willing to let the baht appreciate to help contain inflation, and only plans to intervene if the currency rises at a faster pace than its regional peers, Deputy Governor Atchana Waiquamdee signaled.

The baht has advanced 7.7 percent in the past year against the dollar, the third-best performance among Asia’s 10 major currencies excluding the yen, as overseas investors purchased shares and government bonds to benefit from economic expansion. It pared earlier losses after Atchana’s remarks today.

“A strong baht helps decrease inflation, especially imported inflation,” Atchana said in an interview at her office in Bangkok. “We didn’t resist the trend” of Asian currency appreciation, she said.

Asian central banks from China to Singapore and Thailand are raising interest rates or allowing their currencies to gain as growth and oil at more than $100 a barrel spur inflation. The International Monetary Fund said this month regional authorities must quickly tighten monetary and fiscal policies to reduce the risk that their economies will boom and then bust.

“That will be the trend for most Asian central banks, to let their exchange rate strengthen to help tame inflation,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “Thailand will continue to tighten monetary policy and we will continue to see capital inflows.”

Central Bank Intervention

The baht reached 29.88 per dollar today, the strongest level since Dec. 6, as the central bank raised borrowing costs for a sixth time since June this week and signaled further increases. The currency pared earlier losses of as much as 0.2 percent, trading 0.1 percent lower from yesterday at 29.94 per dollar as of 3:03 p.m. in Bangkok, taking the weekly gain to 0.7 percent, according to data compiled by Bloomberg.

Thailand’s central bank has no target level for the baht, and intervenes “only when the baht overshoots or undershoots or doesn’t move in line with fundamentals,” Atchana said.

Overseas investors bought $798.3 million more Thai equities than they sold this month through yesterday and $3.6 billion more local government debt, according to data from the stock exchange and the Thai Bond Market Association. Southeast Asia’s second-largest economy may expand as much as 5 percent this year, after growing 7.8 percent in 2010, the fastest pace since 1995, Prime Minister Abhisit Vejjajiva said this month.

The central bank lifted the one-day bond repurchase rate by a quarter of a percentage point to 2.75 percent on April 20, and Thailand’s benchmark is higher than a maximum rate of 0.25 percent in Japan and the U.S.

Oil Costs Soar

Thailand, China, India, South Korea, Indonesia, the Philippines and Taiwan all raised interest rates in 2011 to curb inflation. Crude oil has climbed 23 percent this year and reached $113.46 a barrel last week, the highest since September 2008. A stronger currency makes imports of oil cheaper.

Chinese Premier Wen Jiabao said April 9 that stabilizing consumer prices is the top priority and policy tools including the exchange rate will be used to “eliminate the monetary basis for inflation,” while Bank Indonesia Governor Darmin Nasution said last month the bank will allow the rupiah to appreciate to help manage imported inflation. The Monetary Authority of Singapore said last week it will allow the currency to strengthen, sending the local dollar to the strongest level since at least 1981, when Bloomberg began tracking the data.

“If one country intervenes in their foreign-exchange market, others have to do it as well,” Atchana said. “If you look at our increase in the international reserves, you see it is obvious that we intervened in the market.”

Thailand’s foreign reserves have increased by $13.6 billion this year to a record $185.8 billion as of April 15, compared with a gain of $34.3 billion last year. The reserves climbed 0.6 percent last week, according to central bank data released today.

Singapore Dollar Advances

The Singapore dollar has advanced more than 11 percent in the past 12 months against the greenback. Taiwan’s dollar gained 8.5 percent, Malaysia’s ringgit rose 6.8 percent and the Chinese yuan added 4.8 percent in the same period.

“If your currency appreciates, I don’t see any reason why we have to resist that because it helps to reduce the inflation rate of countries in the region,” Atchana said. “We will not lose competitiveness because of the exchange rate.”

Thailand’s inflation rate rose to a seven-month high of 3.14 percent in March while core inflation, which excludes fresh food and fuel prices, rose 1.62 percent, official data show. The central bank uses the core measure to guide its monetary policy and aims to keep the pace between 0.5 percent and 3 percent.

Abhisit has added price controls, kept oil subsidies and pledged higher wages to ease the impact of rising costs ahead of a general election he may hold as soon as June. Bank of Thailand Governor Prasarn Trairatvorakul said last week inflation may climb as much as one percentage point once the government removes oil subsidies.

The onshore one-year interest-rate swaps, the fixed cost needed to receive a floating payment, has increased 115 basis points this year and reached the highest level since December 2008 on April 7, suggesting growing expectations for higher rates. A basis point is 0.01 percentage point.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editors responsible for this story: Tony Jordan at tjordan3@bloomberg.net; Sandy Hendry at shendry@bloomberg.net

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