The projection is part of a macro-economic scenario the Fiscal Policy Office has prepared ahead of a meeting today between caretaker Finance Minister Thanong Bidaya and MR Pridiyathorn Devakula, governor of the Bank of Thailand. The two will discuss the economic problems brought on by higher oil prices, rising interest rates and the negative impact of a stronger baht on exports.

Officials said that between the beginning of the year and April 26, the value of the baht averaged Bt39.02 per dollar. It moved within the ministry's estimated range of Bt38.8 to 40.4, or a projected average of Bt39.6 per dollar, which would facilitate economic growth of 4.5 to 5 per cent this year.

There is a possibility that the baht will be stronger than previously estimated, he said. As the baht has edged higher this year, strengthening above Bt38 a dollar, concern has spread, particularly among exporters.

The office also found that the "real effective exchange rate" of the baht had appreciated since the start of year to April 21 by 6 per cent, compared with the currency of major competitors and trading partners. Also, the baht rose by 7.6 per cent in nominal terms, lower than Indonesian rupiah, which grew 10.1 per cent in value, but higher than Philippine peso of 3.4 per cent.

Yesterday, Thanong suggested that the central bank might want to stop hiking its policy rate. He said he would talk with the central bank about whether interest rates should be maintained after core inflation dropped to 2.6 per cent in March from 3 per cent. A further rate hike is expected to boost the strength of the baht.

Bandid Nijathaworn, deputy central bank governor, said yesterday that short-term foreign exchange inflows had largely caused the baht to appreciate. He said he hadn't seen evidence of currency speculation.

Officials at the Finance Ministry are divided about the impact of a stronger baht. Some said it would reduce the cost of oil imports while others were worried about the impact on exports.

Earlier, the Fiscal Policy Office had studied ways to curb short-term capital inflows to reduce exchange rate volatility. They even looked at taxing incoming cash.

Thanong suggested that the dollar should be used to trade stock on foreign boards in order to prevent baht speculation.

So far, no drastic measures have been imposed to discourage short-term flows. Today's central bank meeting is expected to provide clearer direction on how to manipulate the exchange rate.

Wichit Chaitrong

The Nation