Thailand defends currency curbs

21 Dec 2006


Mumbai: Bank of Thailand will continue regulations aimed at curbing volatility of the baht till the currency stabilises, the central bank governor Tarisa Watanagase said. He also defended measures to control the appreciation of the baht that wiped $23 billion from the value of Thai stocks.

Tarisa, 57, a three-decade Bank of Thailand veteran, said the central bank has no target for the baht's exchange rate with the US dollar.

"As soon as the volatility reduces, we will lift the requirement," Tarisa said in an interview in Bangkok today. "This is temporary." The baht has seen its sharpest decline in more than seven years.

The Thai central bank announced currency controls on December 18 to stem a 16 per cent rise in the bath. This prompted investors to dump Thai stocks, resulting in a stock market crisis, and forced finance minister Pridiyathorn Devakula to intervene by exempting equities from the rules. That helped spur a rebound in the benchmark SET Index.

Pridiyathorn had said the foreign investment curbs were aimed at preventing the currency from appreciating beyond 35 to the dollar.

"We achieved the main target of preventing the baht from strengthening beyond 35 baht to a dollar, which would be a nightmare for the export sector," Pridiyathorn said.

Thai authorities, however, failed to look into the effects of currency curbs on the stock markets.
The baht declined as much as 2.3 per cent to 36.62, paring gains for the year so far to 12 per cent. The SET index fell as much as 2.9 per cent to 671.40. The index fell 15 per cent on December 19, the highest in 16 years.

The baht had surged to a nine-year high after September's military coup on speculation that a new government would end curbs on spending and boost business confidence.

Prime minister Surayud Chulanont said the decision to introduce currency controls on foreign funds "complied with the government's policies" to stem the baht's rise, adding that the reversal of the rule on equities helped limit "damage."

The central bank, however, underestimated the impact of restrictions on equities because "they did it without talking to us," said Thirachai Phuvanatnaranubala, head of Thailand's Securities and Exchange Commission.

Thailand reported a trade surplus for a third straight month in October as exporters shipped more products, spurring economic growth. Export growth in the $195 billion economy will exceed 16 per cent this year, the government said. Exports rose 20 per cent in November from a year ago, a commerce ministry statement said.

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