Published on August 18, 2007
The Bank of Thailand yesterday warned exporters to continue hedging their foreign-currency income because the baht is expected to experience volatility.
BOT Governor Tarisa Watanagase said exporters should not expect the baht's recent weakness to persist. The currency could swing up and down so robustly that firms would have to constantly cover their risk.
"Exporters should not believe that the baht will be like this for long. They must take care of themselves by hedging their income continuously, instead of covering the risk for only some periods," she said.
The baht has weakened gradually over the past few weeks as foreign investors unloaded their stocks on the Thai bourse and shifted the money out of the country to raise their liquidity, which was affected by sub-prime mortgage loans in the United States.
The currency opened at Bt34.56-Bt34.58 to the US dollar in the onshore market yesterday and closed at Bt34.50-Bt34.55, after dipping to Bt34.68. In the offshore market, the baht was quoted at Bt33.20-Bt33.50 at 5pm. The stock market fluctuated yesterday, dropping to 732.78 at one point before closing at the day's high of 758.42, up 1.03 per cent, on retail investors' expectations that the new constitution will be passed at the weekend referendum, paving the way for a general election in December.
The trading value on the stock market was Bt23.55 billion. Foreign investors were net sellers to the tune of Bt6.8 billion, making their cumulative net sales since August 1 about Bt40 billion.
The BOT said earlier this week that about half of the capital from net foreign selling in the stock market had left the country. The direction of fund flows has reversed from the beginning of July, when foreign investors were rushing into the country to grab cheap stocks.
The central bank has been blamed for allowing the baht to appreciate relentlessly without active intervention, causing the currency to break historical levels several times.
As of August 10, net international reserves were US$86.6 billion (Bt3 trillion), of which $73.4 billion was gross reserves and the remaining $13.2 billion was net forward position. The net foreign reserves were $12.7 billion higher than at the end of last year, reflecting the level of the BOT's intervention in the foreign-exchange market.
About 40 representatives of the central bank, the Finance Ministry, academics, bankers and businessmen are to convene on Monday to discuss the foreign-exchange market along with the economic outlook.
Tarisa said the meeting would brainstorm the medium-term picture in the light of the current fluctuations in the economic situation.
"We are ready to listen to recommendations and will get a very good result," the central bank governor said.
Meanwhile, assistant governor Suchada Kirakul said she was confident that the general election would be held, regardless of whether the constitution draft is approved.
The election will be held on December 26 if the draft is passed, and will be delayed only slightly if another constitution has to be adopted instead, she said.
The economy will not be affected much if the draft is not accepted because the government's budget for the 2008 fiscal year has been already approved, she added.
"It is different from last year, when the 2007 budget approval was delayed and there was uncertainty, as a result of which budget disbursement was frozen," Suchada said.
Tarisa, along with Finance Minister Chalongphob Sussangkarn and Deputy PM and Industry Minister Kosit Panpiemras, met Prime Minister Surayud Chulanont earlier yesterday to brief him about the economic situation.
Kosit said the recent worry about sub-prime debts in the US would not impact the Thai economy, especially in the real sector.
The important thing is that the central bank monitors the liquidity in the financial system by keeping track of financial transactions.
"As for the situation in the stock market, no one knows the exact amount or for how long foreign investors will sell. But I think the situation in the stock market is still normal. There are still several other factors. The stocks can go down, and then they go up," Kosit said.
The industry minister said exporters were unlikely to be affected by the fears of a global credit crunch as Asian economies are still growing well. Government spending has already injected funds into the economy and private investment has recovered, he said, adding that consumers would also be more comfortable about spending after the constitution referendum.
Chalongphob warned that Thailand was likely to face pressure from a second round of capital inflows and that businesses should prepare for the situation.