Thailand: Jury out on BOT measures

  • The strengthening of the value of the THB is putting the Bank of Thailand in the hot seat again as an influx of offshore fund flows move into emerging market economies, spelling trouble for the export-reliant country.
  • The THB has appreciated rapidly against the USD following risk-on sentiment based on the outcome of the US presidential election and progress in the development of Covid-19 vaccines. Thailand’s huge current account surplus and ample foreign reserves are also factors attracting speculative investment by non-resident investors.
  • Exports contribute roughly 70% of Thailand’s GDP.
  • To further mitigate pressure on the currency and to address structural issues in the Thai foreign exchange market, the central bank has implemented three additional measures.
  • The first measure allows residents to freely deposit funds in foreign currency deposit (FCD) accounts in Thailand and allow free fund transfers between them.
  • The second measure relaxes the regulations regarding investments in foreign securities. Retail investors are now allowed to invest up to USD5mn per year, up from a previous limit of USD200,000.
  • The last measure stipulates investors are required to complete a registration process prior to investing in Thai debt securities, known as bond pre-trade registration.
  • Nov 20 recorded the largest foreign net inflows to the bond market so far in 2020.
  • Non-resident net inflows were registered at THB31.4bn on a month-to-date basis as of 26 Nov 20, with net inflows into short-term and long-term debt securities tallied at THB10bn and THB9.7bn, respectively, according to TBMA data.
  • The central bank’s measures are projected to have a minor effect in warding off an influx of offshore capital inflows, but “this is better than doing nothing”, said Jitipol Puksamatanan, director of research and asset allocation at SCB Securities.

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