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Published on February 8, 2008

Assistant Governor Atchana Waiquamdee yesterday said the central bank would earn a net profit even though it had suffered a foreign-exchange loss.

However, the foreign-exchange loss was not as large as in 2006, when the baht appreciated 17 per cent from the year before. Moreover, the baht last year did not strengthen against all other currencies like it did in 2006.

"It was because we have diversified the [international] reserves to other currencies," said Atchana.

The foreign-exchange loss occurred because the baht's strengthening over the year caused the value of mark-to-market international reserves to fall in baht terms.

In 2006, the BOT recorded a net loss of Bt102.3 billion, with a foreign-exchange loss of Bt99.7 billion. It marked a net loss of Bt1.7 billion in 2005, with a foreign-exchange loss of Bt7.9 billion. A BOT source the central bank was able to make a net profit last year because the interest-rate income was able to cover interest-rate expenses as well as the foreign-exchange loss.

The BOT receives returns on investment from its foreign-exchange assets; at the same time, it has interest expenses from bonds issued to absorb liquidity from the baht intervention.

The central bank must buy US dollars to slow the strengthening of the baht, which increases liquidity in the financial system.

Assistant Governor Suchada Kirakul said the central bank had since last year issued BOT bonds worth only about Bt1.35 trillion, less than the Bt2 trillion approved by the Ministry of Finance.

The ministry earlier expressed concerns over the central bank's declining capacity to stabilise the baht, which would affect its bottom line. The US Federal Reserve's federal-fund rate cut last month lowers the BOT's returns on assets, while it continues to carry high costs from bond issuance.

The baht has strengthened 2.43 per cent in the onshore market this year but weakened in the offshore market during the same period, reportedly as a result of BOT intervention.

Senior director Pongpen Ruengvirayudh declined to say whether the central bank had intervened in the offshore market.

She said the BOT did not need to bring the offshore baht rate to the same level as the onshore rate, because it did not gain from doing so. The weak baht in the offshore market may be the result of foreign investors buying dollars, she said.

New Finance Minister Surapong Suebwonglee earlier said he wanted to bring the baht's offshore rate close to the onshore rate before removing capital controls on foreign investment.

Anoma Srisukkasem

 The Nation