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Kittiratt Discourages Excessive Intervention to Weaken Baht

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Jan. 24 (Bloomberg) -- Thailand’s Finance Minister Kittiratt Na-Ranong said the central bank should avoid intervention that fights against market forces to stem the baht’s appreciation even as he pushes for a weaker currency.

“I will never encourage Bank of Thailand to go and trade against the market-determined rate unless it’s only part of the daily stability, the weekly stability,” Kittiratt said in an interview today. “The impact on this would be only a very small basis point of the exchange rate. There won’t be any effort against trading against this rate to any significant level.”

The baht extended losses from a 17-month high this week amid speculation the central bank will intervene to halt gains. December export growth missed analysts’ estimates, prompting concern that the currency’s appreciation will pare shipments that account for about two-thirds of the economy.

Thailand is among emerging market nations seeking to stem inflows as monetary easing in the U.S., Japan and other developed economies spurs demand for higher-yielding assets. Prime Minister Yingluck Shinawatra’s government raised the minimum wage throughout the country this month, adding to stimulus measures aimed at increasing purchasing power and reducing reliance on exports for growth.

“In the short term, if I can hope for, I would like to see a little bit weaker baht,” Kittiratt said in Bangkok before flying to Davos, Switzerland, to attend the World Economic Forum. “For the exporters, a strong baht really pushed them into pressure. While they are adjusting themselves to higher human resources costs, a weak Thai baht may help them.”

Seeking Stability

Lower interest rates would discourage inflows into the country, Kittiratt said, adding that the measure could be a “double-edged sword.”

“One of the things we’d like to see is stability,” he said. “The job of the central bank is to work under certain resources and measures they have to smooth it. I disagree with any measures -- whether short term, medium term or long term -- that won’t be natural or sustainable.”

The baht advanced 2.7 percent in the past month against the dollar, the most among 25 emerging market currencies tracked by Bloomberg. Thailand’s SET Index has increased 5.3 percent, more than benchmarks in Indonesia, Singapore and Malaysia.

Intervention Pressure

Global funds purchased $3.4 billion more Thai sovereign debt than they sold this month through yesterday and poured a net $459 million into local equities, Thai Bond Market Association and stock exchange data show. The 10-year government bond yield was 3.72 percent, compared with 1.83 percent for similar-maturity U.S. Treasuries and 0.73 percent in Japan.

Kittiratt’s remarks “lessen the pressure on the Bank of Thailand to intervene as the government is shifting attention to domestic demand from exports,” said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl. “A stronger baht benefits domestic consumption and investment by making imports cheaper. The government is also calling for lower interest rates and a rising baht makes the case of a rate cut stronger.”

Thailand’s inflation accelerated to a 13-month high in December as subsidies failed to counter rising prices of food and fuel. Consumer prices rose 3.63 percent from a year earlier after an increase of 2.74 percent the previous month, official data showed on Jan. 2.

‘Play Catch-Up’

Daily minimum wages in Thailand have risen as much as 89 percent after two increases in the past year. Most factories are located in an area where wages rose to 300 baht per day last April, an average increase of 38 percent, according to the industry ministry.

Investors may be trying to “play catch-up” after the baht lagged behind gains in other currencies last year, Bank of Thailand Governor Prasarn Trairatvorakul told reporters today.

“From what we see, it’s not a currency attack,” he said. “The flows to attack the currency will try to dictate the market and try to build up the price. From what we see now, the selling and buying sides are not much different. They are rather balanced.”

Over the long term, the government plans to invest in infrastructure to increase imports and reduce pressure on the currency, Kittiratt said. He has proposed spending 2 trillion baht ($67 billion) over seven and a half years on projects including a railroad network to accelerate investments that slowed in the wake of the Asian financial crisis.

1997 Crisis

In 1997, Thailand devalued the baht to shore up a faltering economy, abandoning its policy of pegging the currency to the U.S. dollar. Investors sold Asian stocks and currencies, causing neighboring economies including Malaysia and Singapore to shrink, and leading Thailand, South Korea and Indonesia to seek bailouts from the International Monetary Fund.

“The shadow of 1997 is there,” Kittiratt said, adding that a conservative approach to spending had led to persistent current-account surpluses. More spending would lead to “a pleasant deficit, because we are going to invest in those imports that will help yield a long-term return for the country.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net