Assistant governor Atchana Waiquamdee pointed out that during the second half of last year the baht had not strengthened against other currencies in the region, but exports had not grown significantly.

Exporters have been complaining about the baht moving up 7-8 per cent so far this year.

Praphad Phodhivorakhun, outgoing chairman of the Federation of Thai Industries, said all industries had already been hit by the recent baht appreciation - some more and some less - according to their usage of imported raw materials.

"Those that import raw materials for their production stand to suffer less, as the cheaper imports would somewhat offset rising costs from higher oil prices," he said.

Though he believes the baht's gain on the US dollar will be short-lived, the federation has recommended that all of its members buy currency hedges as a preventive measure.

Atchana downplayed the baht's effect on exports. "The baht adjustment has had a slim impact on trade. When other currencies were stronger, our exports did not grow faster than other countries," she said.

The baht has been trending up since January, when capital flooded into the country, particularly for the  investment in the Shin Corp deal.

"The baht is the latecomer, having just become stronger following other currencies," she said. The Korean won has already climbed to its pre-crisis level but the baht is not there yet, she said. Before the Asian financial crisis of 1997, some regional currencies were considered overvalued.

Thailand's "nominal effective exchange rate", which measures competitiveness in terms of currency, was at 72.71 in March, compared with 72.02 in February. It shows that the country's competitiveness in terms of currency slightly worsened against trading partners.

The central bank said the baht's appreciation was inevitable and it would take time for the currency to adjust. However, market mechanisms will kick in as demand for dollars increases. The demand for the baht has been stoked by the huge amount of foreign inflows.

The weakening dollar will in fact help correct global imbalances as the world's largest economy faces twin deficits, she said.

The central bank took the strong baht into account in updating its economic projections, which will be announced next week, she said, adding that high oil prices, expectations of US rate hikes and government spending will make key impressions on economic indicators.

Oil prices have passed the level assumed in the central bank's earlier base-case forecast, but are lower than the worst-case scenario of US$70 (Bt2,650) a barrel in Dubai.

The central bank had expected that the Fed would raise its key policy rate to a peak of 4.75 per cent this year. The market, however, sees the Fed pushing the rate up to 5 per cent.

The delays in mega-projects and 2007 budget planning have also held the economy back, she said.

Anoma Srisukkasem

The Nation