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Sarun Kijvasin

The Nation

Publication Date : 14-03-2013

Bank of Thailand Governor Prasarn Trairatvorakul yesterday calmed nerves over Tuesday's sudden spurt in the baht, saying it reflected growing investor confidence in the country's economic fundamentals.

The rapid appreciation was likely due to currency purchases by foreign investors after the country's credit rating was revised upwards and the central bank indicated that its 2013 growth forecast would likely be revised upwards, he said.

On March 8, Fitch Ratings upgraded Thailand's Long-Term Foreign Currency Issuer Default Rating to "BBB+" from "BBB" with a stable outlook.

Last week, the central bank said strong momentum could warrant an upward tick in its prediction of economic growth for this year from 4.9 per cent to at least 5 per cent.

Over this week, Narongchai Akarasanee, a member of the Monetary Policy Committee, signalled the possibility of an urgent meeting of the MPC before the next one scheduled on April 3 following the sharp rise of the baht against the US dollar. Although the baht surged swiftly on the morning of March 12, some buying of dollars began in the afternoon, leading to some weakening in the baht.

"There came out an upgrade of credit ratings and the economy expanded satisfactorily, while neighbouring countries will have elections with conflicts. Despite the strengthening of the baht, it moves in two directions," Prasarn said.

However, operators should be careful about the volatility of the baht.

There was no need to change the exchange rate policy, given the satisfactory results of the current method. The central bank is regularly monitoring movements in the exchange rate to see if they are in line with the economic direction.

The central bank has been reporting to the MPC as usual on the baht situation and there was no need for a special meeting now.

On March 12, capital flowing into Thailand was not much and net capital inflow was very small.

"We are not bothering about a particular issue. Now, we try to implement policies, particularly about the market mechanism, for a balance, while the exchange rate framework is moderately flexible," he said.

Although some observer may believe the baht's ascendancy is the result of foreign funds' investment in the Finance Ministry's inflation-linked bonds, that may not be possible because it was just an interest in purchasing the bonds. There was no real payment, he added.

Sira Klongvicha, chief investment officer at Krungsri Asset Management, said that the United States' extremely low interest continues with quantitative easing until there is a clear sign of recovery, driving capital to flow into emerging markets, particularly in Asia.

He said that Krungsri Total Return Bond (KF-TRB), which has a policy to invest in PIMCO Total Return Bond Fund Class E Acc (USD), was expected to yield a return of about 3-5 per cent per annum.

"The policy rate [one-day repurchase rate] is expected to remain at 2.75 per cent until the end of 2013 due to the poor economic situation abroad. Emerging markets have not hiked their rates yet. If only Thailand hikes the rate, that could have an adverse impact on the country and encourage capital inflow. Therefore, the Bank of Thailand may try to maintain this balance," Sira said.

He suggested fixed income fund investment with a maturity of no more than one year.