Thailand looks to rein in baht as it hits 6-year high

• The Bank of Thailand is considering imposing additional measures to rein in the currency amid further gains in the baht to a six-year high and worries about economic growth.
• The economy could be more sensitive to greater currency appreciation, the Bank of Thailand said in minutes of the 25 Sep 19 monetary policy committee meeting published on 9 Sep 19. This would be an “additional pressure” on softening domestic demand, particularly exported-related manufacturing and services, it said.
• Additional currency measures could include continued relaxation of capital outflow regulations to encourage Thai residents to increase their portfolio investment abroad, the central bank said.
• It could also consider measures in collaboration with other organisations, “including efforts to stimulate investment to reduce the elevated current-account surplus.”
• The MPC “saw the need to preserve policy space in order to cushion against possible risks in the future and deemed it necessary to monitor the impacts of the policy rate cut and fiscal stimulus measures on the economy,” according to the minutes.
• The panel will be “data-dependent” going forward, and will monitor growth, inflation and financial stability risks, it said.
• Risks to the economic projection are skewed to the downside, with trading partners’ economic growth slipping because of a number of uncertainties, including trade spats, a longer downturn in the electronics market cycle, Brexit negotiations and geopolitical risks.
• All of these factors have had the cumulative effect of lowering Thai merchandise exports.
• Domestic demand could be lower than expected because of uncertainties regarding government policy implementation, delays in public-private partnerships for infrastructure investment projects and a further weakening of household purchasing power as a result of deteriorating employment in export-related sectors and the fallout from natural disasters.
• While some financial system risks that could pose vulnerabilities to future financial stability have been partially addressed by macroprudential measures, other risks to financial stability have not improved and warrant monitoring, the minutes said.
• These risks include swelling family debt; search-for-yield behaviour in the prolonged low-interest-rate environment, which could lead to underpricing of risks, especially for savings cooperatives and leverage for large corporations; and greater risk in the real estate sector, especially with the oversupply situation in some areas.

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