Banthun Wongsilachot, chairman of the subcommittee on trade-related impacts for the board, said that in the past month, the baht had appreciated 8 per cent against the US dollar while other regional currencies' gains had been lower against the greenback. He cited the case of the Japanese yen, which had risen only 2 per cent.

"Fundamentally, the Thai economy is not strong enough to witness an 8 per cent appreciation in the Thai currency. This must have been the result of speculation and the central bank should take retaliatory action before the strong baht hurts [teh country's ability to meet its] economic targets," he said.

On the same day, the BOT said it was closely monitoring the baht, saying it does not want the currency to appreciate too rapidly after reaching fresh six-year highs.

The central bank's deputy governor, Bandid Nijathaworn, said yesterday that the baht's appreciation was due mainly to the weak US dollar and capital inflows into Asian countries.

"We are closely monitoring the baht and don't want to see too much adjustment, too quickly," Bandid said.

The central bank will "oversee" the currency to prevent it from becoming too volatile and would like to see it moving in line with other regional currencies.

Yesterday, the baht strengthened to Bt37.75 per dollar in morning trading, a fresh six-year high - 8.9 per cent stronger than at the end of last year. It closed at Bt37.74 per dollar.

In a separate development, the BOT said the temporary suspension of the government's Bt1.8-trillion mega-projects would not hurt economic growth much this year, but the economic picture next year depends largely on when a new government is formed.

Suchada Kirakul, senior director of the BOT's monetary policy group, said public investment was still boosting the economy this year, as many projects worth more than Bt1 billion in the aggregate are proceeding as planned.

These include, among others, the import of aircraft for Thai Airways International, PTT's settlement of pipelines, and construction of low-income homes.

"Many projects are going to be implemented as planned," Suchada said. "The postponement [of the mega-projects] will not have a big impact on the economy. The mass-transit system will be affected more than other mega-projects. However, the government always has an annual investment budget which will help to drive the economy."

The BOT has slightly reduced the amount of investment it was expecting in the mega-projects this year. Its earlier projection was Bt135 billion. The new figure will be announced next week.

Suchada said that if a new government can be established soon, the 2007 budget will face a one-month delay. However, budget disbursements will be delayed further if it takes a long time to appoint a new cabinet.

Meanwhile, the BOT has relaxed its regulations governing the opening of new branches by commercial banks. Previously, banks were obliged to provide loans equal to 60 per cent of deposits in any region before they could open a new branch. The value of loans has now been reduced to 40 per cent of deposits.

The change also extends to rural areas, where banks were earlier required to provide loans equal to 20 per cent of deposits before opening new branches. The figure has been reduced to 15 per cent.

A BOT official said the new rules were designed to better allow banks to manage their liquidity.

Phafun Musickaratthamrong,

Anoma Srisukkasem

The Nation