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Published on July 12, 2007

As the baht rose to a new 10-year high of 33.18 against the US dollar yesterday, closing at 33.32-33.35, the Bank of Thailand urged financial institutions to check whether customers actually have export orders with which to exercise their forward transactions.

The precaution is to prevent over-hedging, which has recently been pushing the baht up yet further.

The BOT said banks must ensure that their export customers' forward transactions are in line with regulations. Exporters who want to conduct forward transactions are required to show evidence to prove that they will definitely have foreign-exchange income to transact with their counterparts on due dates.

The central bank's e-mail to financial institutions came after many exporters rushed this week to sell out their dollar income in the expectation that the baht will continue to surge. This behaviour has put immense pressure on the currency, causing it to appreciate relentlessly beyond the Kingdom's economic fundamentals.

"If customers cannot send foreign-exchange currency to the banks as promised, they must have sufficient reason for that. The financial institutions must make sure that the customers do not engage in baht-speculative transactions," said the central bank's e-mail message.

Nevertheless, exporters who can present clear evidence on their source of foreign income from future transactions can sell dollars in futures markets as part of their normal risk-management strategy.

Meanwhile, BOT Governor Tarisa Watanagase said yesterday that many exporters had slowed the pace of dollar-selling this week, having gained a better understanding of the baht's movement.

The stronger baht yesterday was a result of capital inflows into the stock market, yet the current pace of these inflows is expected to be temporary, she said.

Tarisa said she could not keep the baht at any particular level, as the country does not have enough international reserves, unlike China, amid the tremendous flow of capital.

The baht should not be fixed at any level, she said, although the reserves are large enough for the unit to adjust itself in line with macroeconomic conditions. As of June 29, foreign reserves were recorded at US$73 billion (Bt2.4 trillion).

Tarisa said the foreign capital inflow could put pressure on the baht to strengthen during the rest of the year, but economic recovery would lessen the pace of appreciation when a flow of imports picks up pace.

Moreover, she insisted Japan had increased the amount of the bilateral swap agreement with Thailand from $3 billion to $6 billion as a form of friendly assistance, and not because Thailand is vulnerable to another financial crisis.

The bilateral swap deal exists among Asean, China, Japan and South Korea to

create a financial assistance network based on the Chiang Mai Initiative. It is a preventive measure to help member countries facing balance-of-payment deficits or a shortage of short-term liquidity.

Thai shares yesterday ended 1.42 per cent lower on a regional stock-market slump and profit-taking after the recent streak of stock rises.

The SET Index moved in roller-coaster fashion the entire day and was hit hard in the second trading session. It peaked at 861.01 points before closing at the day's trough of 846.28. Turnover was moderate at Bt34.42 billion.

Foreign investors turned to selling shares to the tune of a net Bt452.57 million.

The selling pressure was seen in blue-chip stocks. Siam Commercial Bank dropped 2.37 per cent to Bt82.50, Thai Oil Plc fell 2.44 per cent to Bt80, PTT was 1.95 per cent down at Bt302, Kasikornbank was 2.86 per cent down at Bt85, and PTT Exploration and Production was off 3.15 per cent at Bt123.

Despite the slump in Thai shares, brokers are confident that the bull-run in the stock market will continue.

 "However, the stock market direction will move narrowly because of the absence of fresh news," said an analyst at a local brokerage. "We have to keep watch on the degree of the selling spree from profit-taking and capital inflows. Given the stronger baht, foreign investors will not rush to unload Thai shares. If the SET stays above 845 points, a rebound is likely,"

Meanwhile, exporters have asked the government to set up a special fund designed to support them in importing new machinery to take advantage of the appreciation of the baht.

Exporters have been hit hard by the recent surge of the baht against the dollar and the latest measures from the Bank of Thailand cannot prevent further appreciation, Tanit Sorat said yesterday. Sorat is president of the V-Serve Group of Companies, a logistics service provider and e-customer broker. He is also secretary-general of the Federation of Thai Industries.

Tanit said at a seminar hosted by the National Economic and Social Advisory Council that the baht had risen 7 per cent since the beginning of the year, second only to the Indian rupee, while other currencies in the region had risen between one and 3 per cent.

In responding to the government's urging the private sector to import machinery and improve productivity, Tanit said local companies did not have the liquidity to do so. He suggested the government set up a special fund to assist exporters who want to replace their machinery.

He also urged the central bank to do more to curb baht appreciation in the short run. A short-term measure is more important because it will take time before private companies can improve their productivity, he said.

While multinational firms can manage their costs by importing more raw materials, Thai firms that use local materials have suffered, he added.

The textiles, food, footwear, jewellery and auto-parts industries have been affected by rise of the currency, he said.

However, Vasan Phothipimpanond, the owner of Benz Thonglor, said the Bank of Thailand and exporters should not panic as money speculators play a money game.

He said foreign funds try to make a profit from the forex trade by buying local stocks. It is not a matter of Thailand's economic fundamentals, it is a money-speculation game similar to what happened in the 1997 financial crisis, he insisted.

Anoma Srisukkasem

Wichit Chaitrong

The Nation