BoT: Big State Investments Will Help Cool Baht Next Year

From The Bangkokpost

The rise in the baht is likely to ease next year as government investment in large infrastructure projects raise imports, according to Tarisa Watanagase, the governor of the Bank of Thailand.

Exports are expected to decline this year, in line with the slowing global economy, which would also help weaken the baht, she said yesterday.

''The balance of payments surplus will be lower than in 2006. In the long term, the baht will not keep rising. The trade surplus may be lower in the next year, with a possible deficit in some months due to imports for megaproject investments,'' Dr Tarisa said.

But the baht, now quoted at around 34.6 to the US dollar, could be volatile in the short term as capital inflows could rise in line with a surge in regional stock markets, she added.

The central bank expects the US market to weaken, along with intra-regional trade this year, with Japan and Europe offsetting the impact.

Thailand's exports grew 18% year-on-year in the first four months of the year, against the central bank's forecast of between 7.5% and 10.5% for all of 2007.

Import values rose 5.5% year-on-year during the same period, against the central bank's full-year forecast of 7-10%.

One concern in currency markets has been the decision of the People's Bank of China last week to widen the daily trading band of the yuan from plus or minus 0.3% to 0.5%.

Beijing has been accused of keeping its currency artificially low, leading to trade distortions and a huge trade surplus with the US.

However, Dr Tarisa was cautious in assessing the impact China's latest move might have on Thailand's economy.

''We need to keep watching. The expansion of the band may not be practically effective if they do not let the yuan hit the ceiling,'' she said.

But any move by the Chinese central bank to let the yuan strengthen would benefit the Thai economy as it improves price competitiveness of exports compared to China.

While the yuan has been appreciating in broad terms, it has actually fallen on a trade-weighted basis, she added.

Dr Tarisa also said the Bank of Thailand had eased regulations for local institutional investors looking to invest abroad in order to reduce upward pressure on the baht, but the response had been limited so far. The central bank now allows funds to invest up to $50 million abroad without requiring prior approval.

Only 18% of the $3.3 billion approved for investment abroad has been utilised over the past four years, she said.

Concern about further baht appreciation has made investors reluctant to commit funds abroad, though she believes such investment will pick up once the baht stabilises.