Thailand: BoT pegs losses to strong baht mitigation

  • The Bank of Thailand has attempted to allay concerns about its accumulated losses by clarifying that they stem from its financial operations to mitigate baht appreciation through foreign currency purchases.
  • “The central bank has purchased foreign currencies to prevent the baht from appreciating too quickly, which would have an adverse effect on Thailand’s fragile economic recovery,” said Chantavarn Sucharitakul, assistant governor for corporate strategy and relations group.
  • An increase in Thailand’s foreign reserves is attributed to substantial foreign capital inflows, causing the country’s current account to have recorded a hefty surplus in recent years and investment flows from foreigners, she said.
  • “Whenever the baht appreciates, this causes a valuation or accounting loss. On the contrary, foreign reserves quoted in baht record a valuation or accounting gain when the baht depreciates,” said Mrs. Chantavarn.
  • “Usually a currency’s value strengthens when economic conditions improve and the central bank often records a valuation loss,” she said. “But if the economy is not healthy, the currency depreciates, resulting in a valuation gain for the central bank.”
  • Foreign reserves totalled USD215.4bn as of 27 Apr 18. Thailand’s current account surplus stood at USD17.1bn in 1Q18, while 2017’s current account surplus was logged at USD48.1bn.
  • The Bank of Thailand’s accumulated losses widened to THB879.4bn as of 19 Apr 18. That was up from losses of THB725bn at the end of 2016 and an increase from the THB635bn and THB573bn recorded in 2015 and 2014 respectively.
  • The value of foreign reserves in baht terms will fluctuate according to the foreign exchange rate, while a valuation loss does not mean that the central bank’s foreign reserve value is impaired or indicate problems related to the country’s economic stability, said Mrs. Chantavarn.

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