"We found that some banks have reaped profits from the currency, so we have asked the Thai Bankers' Association to take care of the issue. If banks take benefit from the foreign exchange rate, they should stop doing so. The central bank also affirmed that we would not peg the foreign exchange rate and we don't have any new measures. Fully hedging measures are good enough," BOT governor Tarisa Watanagase said.

"We summoned the banks because there was a rumour in the market that the central bank would fix the foreign exchange rate. Don't worry, we will not do so. We did not issue a circular letter to require banks to buy the US dollar," BOT assistant governor Nitaya Pibul-ratanagit told reporters after a meeting with executives of the banks.

Baht trading yesterday was highly volatile. It opened at 34.95-34.98 to the US dollar before closing at 35.05-35.08. On Friday it closed at 35.05.

Meanwhile, Finance Minister Chalongphob Sussangkarn said in a separate meeting that he preferred the central bank to reduce interest rates while the Finance Ministry will soften its fiscal policies in a bid to boost the economy.

He also said that the central bank should be more effective in sending signals to the market to avoid confusing investors.

He said the central bank should explore all available tools to keep exchange rates under control. While saying that the 30-per-cent withholding requirement on capital inflows was "too a strong measure", he said the measure was only "on paper".

In response to the International Monetary Fund's recommendation to abolish the central bank's capital controls, Chalongphob said that the 30-per-cent withholding requirement was not enforced, since the central bank put in place the full hedge requirement on March 15.

BOT assistant governor Suchada Kirakul also denied the rumour that the central bank would peg the currency.

"It is groundless. We have never had any idea to peg the baht at 36. The managed floating system is the right policy. All systems cannot prevent currency problems," she said.

A source at a bank said after the meeting that the central bank had asked both foreign and local banks to adjust their foreign-exchange positions to the same level as at the end of 2006, resulting in banks buying US dollars.

The measure caused the baht to weaken significantly last Friday. There was a report that the Thai Bankers' Association issued the circular for banks to adjust their position by buying US dollars after the central bank asked for their assistance.

A dealer at a local bank said the baht weakened to below the 35-threshold yesterday as the banks were not sure whether the central bank would introduce any new measures in a bid to depreciate the baht, so they decided to hold US dollars.

He said it was possible that the central bank would fix the baht as rumoured, but questioned whether it was the appropriate measure to defend the baht.