The Bank of Thailand (BOT) is considering easing rules for overseas investment to counter the rising value of the baht as it continues to intervene in the currency, which has shot up to a near seven-year high at Bt36.88 to the US dollar.

The strengthening of the baht has been attributed mainly to equity-linked capital inflows.

Tarisa Watanagase, BOT governor-designate, admitted yesterday that the central bank had "overseen" the baht's value after the unit appreciated too much, too soon.

Too high an appreciation of the baht would negatively affect the economy, she said.

The baht opened at Bt36.90-Bt36.94 to the dollar yesterday and shot up to Bt36.88 during the day's trading, before closing at Bt36.89.

Dealers said the baht was expected to move in the range of Bt36.50 to Bt37 against the greenback next week.

Tarisa said the bank may relax rules on offshore investment for local entities to allow greater baht outflows amid strong capital inflows in the recent weeks. "It could be relaxation on the amount of investment or the conditions of investment. We are looking at the possibilities," Tarisa said.

Yesterday, the SET Index closed at 725.77, 0.37 per cent lower than the previous day in line with regional markets and pressure in the energy sector from rising oil prices, dealers said. But the index has risen 6.44 per cent from 681.84 on October 3.

However, she said the current baht level was still in line with the movement of regional currencies. This level has still not affected the country's competitiveness, she said.

"Today the baht has appreciated significantly. We then had to oversee the baht closely. If it is too strong, it would affect the economy," Tarisa said.

The equity-linked capital inflows have caused the baht to rise from Bt37.47 on Tuesday to its near seven-year high on Wednesday and reach a new record on the following days.

The capital inflows into Asia are mainly due to the US Federal Reserve decision to maintain its policy rate unchanged at 5.25 per cent early this week.

In addition, the Industrial and Commercial Bank of China's recent debut in the Hong Kong stock exchange, marking the world's largest initial public offering, has also drawn much attention from investors. The stock has been largely oversubscribed. Many believe funds left over from the ICBC subscription have been diverted to other markets in Asia, including Thailand.

"We're closely monitoring capital inflows and know well where they are coming from as well as where they are going to. Most of the capital inflows went to the equity market as well as mutual funds. We'll still keep an eye on inflows to prevent them from affecting the baht too much," Tarisa said.

Tarisa maintained the rise of the baht is in line with regional currencies.

"Our currency is not the strongest," she said. "There are others that are much stronger and moving at a much faster pace. But we're in the strong group mainly due to capital inflows from the US after the Fed maintained its rate unchanged," she said.

Somruedi Banchongduang

The Nation