A currency expert believes the baht could rise to 30 to the US dollar due to market mechanisms if the Bank of Thailand (BOT) does not intervene in the level of the currency, while exporters urged the central bank to slow the baht's appreciation.
Adisak Kammoon, vice president of KGI Securities (Thailand), said the movement of the baht would have to be closely monitored.
"The Bank of Thailand still doesn't let the baht move freely according to market forces, which is considered dangerous because it may quietly lead to another financial crisis," he said. "Thus, as long as the Bank of Thailand is not confident that the exporters will be able to compete on their own, it is unlikely that the 30 per cent capital control will be revoked. There is a possibility that there may be additional measures to prevent the baht from rising further. If the baht is allowed to move according to the market, the level of the baht should be Bt30."
His comments came after the baht turned stronger to a fresh 10-year high at Bt34.19-34.21 yesterday compared to the closing value of Bt34.33 on Tuesday, mainly due to inflows to the stock exchange. The Thai stock market has rallied for three days in a row, boosting the SET index by more than 20 per cent. The baht also appreciated by 0.51 per cent against the euro from Tuesday and 0.36 per cent from last month. The baht against Japanese yen was up 0.45 per cent from Tuesday and 0.15 per cent from last month.
The baht has turned dramatically stronger compared with major currencies. It opened yesterday at Bt34.20 to the greenback, up 0.47 per cent from Tuesday and 0.96 per cent from the end of June.
A trader said the baht rose further after it broke the Bt34.50 barrier. "Some Thai exporters sold dollars in big lots yesterday," said the trader, who asked not be named.
The Customs Department said it has so far lost Bt3 billion in revenue due to the baht appreciation, which has recently touched a 10-year high, as well as the country's obligation to follow the Asean Free Trade Agreement (Afta).
Customs Department director-general Chavalit Sethameteekul said yesterday the stronger baht and lower income from Afta will cost the department around Bt3 billion in lost revenue.
He said in the third quarter the department expected to collect around Bt20 billion in revenue or around Bt7 billion per month. The department is likely to collect around Bt88 billion in tax revenue for 2007 fiscal year, while revenue in the next fiscal year is forecast at a slightly lower figure of Bt87 billion. The department's income will fall next year mainly due to further tariff cuts following Afta obligations.
Meanwhile, the private sector has called on the BOT to find measures to curb the baht's appreciation after it was quoted yesterday at Bt34.17 per dollar.
The Federation of Thai Industries (FTI) will meet the central bank in a week or two if the baht keeps getting stronger, its chairman Santi Vilassakdanont said. He said the appreciation was caused by the flow of capital into Thailand's stock market and the influx of dollars from exporters.
He said the BOT has to consider whether the stronger baht was in line with other countries in the region.
Santi said the Thai currency market was more vulnerable to flows of foreign capital compared to other countries such as China, Japan and Vietnam due to the country's fewer regulations.
Although the total value of exports in the first half grew around 16 per cent, this does not mean that exporters will enjoy that growth, he said. On the contrary, they had to boost their exports in order to keep their customer base, while they could not earn any profit.
Nonetheless, Santi believes the country's export value will grow by 12.5 per cent - the same as the Commerce Ministry's target at the beginning of this year.
Boonkij Jitngamplang, chairman of FTI's Gem and Jewellery Industry Club, said operators in this industry were seriously affected by the stronger baht.
"If the BOT is unable to stabilise the baht, we will see a number of gem and jewellery operators close down their business this year," he said.
However, the central bank sees no need to intervene.
BOT deputy governor Atchana Waiquamdee said so far the baht has appreciated by four per cent from the beginning of this year but the central bank does not need to step into the market to halt the baht's movement.
"It is normal that the baht is stronger when there is demand for baht but we do not need to take care of it specifically," she said.
She conceded that the withholding reserve requirement could not prevent the appreciation of the baht as the measure did not cover portfolio investments by non-residents.
BOT governor Tarisa Watanagase said a large amount of capital has flowed into the country over the past few days but the baht movement remained in line with regional currencies. The baht rose by 5 per cent from the beginning of the year, compared to the Philippines peso at 6.7 per cent and the Indian rupee at 8.9 per cent.
The foreign funds flocking to the Thai bourse reflected the Kingdom's sound economic fundamental factors with a low P/E ratio.
Tarisa said despite the amount of foreign inflows into portfolios earlier, the baht had been stable due to demand for dollars from importers. The appreciating baht, however, does not translate into an absolute disadvantage for Thailand as it also indicated an increase in the Kingdom's purchasing power for imported goods.
She said the BOT would intervene in the foreign exchange market whenever the baht swung too much, just like in December last year when it appreciated by one per cent a week.
The BOT has encouraged institutional investors to invest abroad in order to increase investment choice and reduce pressure on the strong baht. However, they have exercised their rights to only 27 per cent of the approved ceiling. Last year, such investments increased sevenfold compared with 2005.
Deputy Prime Minister and Industry Minister Kosit Panpiemras attributed the rise of the baht to the fact that the business sector has began to become convinced that the Thai economy will be resolved for the better.