The Kingdom's competitiveness has decreased to its lowest level in seven years and eight months in baht terms. The Nominal Effective Exchange Rate (NEER) Index hit 78.3 last month, higher than February's 77.36. It rose 2.1 percentage points from last December and marked the index's highest level since the historic high of 79.6 recorded in July 1999.

If the change in the NEER Index is higher than the strength of the baht, then that means the baht is stronger than other currencies, indicating a loss of competitiveness.

The continuing appreciation of the baht was the main factor dragging down competitiveness, compared with 21 currencies of trading partners and competitors.

The change in the NEER Index was in line with the change in the baht's value during the same period. The reference rate last month was Bt35.0578 against the US dollar, 2.21 per cent stronger than last December.

The appreciating baht has already eroded export income in baht terms and partly dampened competitiveness. Last year, baht appreciation resulted in exports growing only 11 per cent in baht terms, lower than the 17-per-cent growth in dollar terms.

However, low inflation has helped keep a competitive edge among exporters. Inflation increased 2 per cent last month, lower than the rise in February. This may indicate that the Real Effective Exchange Rate (REER) Index shows a satisfactory level and maintains the country's competitiveness. The REER Index is the NEER minus the effect of inflation.

Export value showed a sharp increase of 17.7 per cent and 18.4 per cent in the first two months of the year, respectively, which made the Commerce Ministry maintain its export target of 12.5 per cent.

Analysts, however, have criticised that the sharp rise in exports resulted from old orders, as exporters in many sectors have complained about their reduced margin from the stronger baht.

The Bank of Thailand (BOT) has extensively intervened in the foreign-exchange market, due to the rapid growth in the baht's strength. It bought US$15 billion (Bt524 billion) worth of greenbacks throughout last year to weaken the baht before introducing its unremunerated 30-per-cent reserve requirement last December 18.

In the first quarter of this year, the BOT bought $4 billion worth of greenbacks to defend large sales of dollars by exporters and commercial banks, then had to issue about Bt1 trillion worth of bonds to absorb liquidity after the intervention.

Exporters have speedily sold out their dollar incomes out of grave concern about further appreciation of the baht once the central bank's withholding reserve requirement is revoked.

Moreover, two Thai banks have been accused of shorting the dollar by selling out of them, thus resulting in the baht's massive strength.  As a result, the BOT has asked all banks to adjust their net foreign position to the same level maintained at the end of last year.

Thus, the baht has been stable for weeks at slightly above 35 to the dollar, because the BOT has closely monitored banks' speculative behaviour.

Markets have apparently been waiting for the revocation of the withholding measure, although the fully hedged measure will remain intact.

Anoma Srisukkasem

The Nation