Bank of Thailand looking to ease capital outflow rules to curb baht

THAILAND’S CENTRAL BANK will take further steps to ease restrictions on capital outflows in coming months as it tries to curb gains in the baht, Governor Veerathai Santiprabhob said.

The Bank of Thailand plans to increase the amount of proceeds exporters can hold overseas, liberalize foreign-currency deposit accounts and take steps to enable insurance companies to invest more abroad, Veerathai said in an interview Wednesday at his Bangkok office.

The Bank of Thailand has been struggling to rein in the baht after it gained almost 6% against the dollar over the past year, making it the best performer among Asian currencies. The appreciation has hurt exports and curbed tourism, denting two key industries in the trade-reliant economy. The baht weakened immediately after the governor’s comments Wednesday, and was up 0.1% against the dollar at 30.314 as of 8:40 a.m. Thursday in Bangkok.

Mr. Veerathai, 50, told Bloomberg Television’s Haslinda Amin that the baht hadn’t been moving in line with economic fundamentals last year. While the central bank doesn’t target a specific level, he said, it wants to ensure the currency’s moves are more in sync with regional and other emerging-market peers.

“All in all, we think the baht has appreciated too much,” the governor said. “People might say it has been the best-performing currency, but in Thailand we’re not happy about it. When the baht is not moving in line with fundamentals of the economy, it should not be considered the best performer.”

The central bank already has taken several measures to counter the baht’s gains: It cut interest rates to a record low last year, imposed measures in July to counter short-term inflows, and in November relaxed rules to spur outflows.

“It seems that the Bank of Thailand is able to control the baht now,” said Jitipol Puksamatanan, chief strategist at Krung Thai Bank Pcl in Bangkok. “I believe that it would restore the relationship between the baht and other Asian currencies, to support exports.”

Veerathai outlined additional steps that will be taken:

• In the next 1-2 months, increase the amount of proceeds exporters can hold overseas to $1 million per lading bill, from the current $200,000 cap, a step that will cover about 80% of Thailand’s exports.

• In the first half of the year, liberalize the foreign-currency deposit account framework so individuals and local companies can keep foreign currency in Thailand.

• Relax rules so insurance companies can invest abroad more easily.

The baht is seen as a relative safe haven, given Thailand’s substantial foreign exchange reserves and hefty current-account surplus. Veerathai said he expects capital flows to be “better balanced” this year because of plans by Thai companies to invest abroad, and a narrowing in the current-account surplus.

A member of Thailand’s monetary policy committee said Monday the central bank will aim to prevent the currency from strengthening beyond 30 to the dollar. Mr. Veerathai said the committee member may have been speaking for himself, and didn’t represent the central bank’s view.

“The focus is more on looking at the movements, rather than at a fixed level,” Mr. Veerathai said. If the currency is moving too fast or out of line with its peers, “then we would be very concerned about it.”

MONETARY POLICY
The governor said the central bank takes a “data-dependent approach” to monetary policy, and will be ready to take further policy action if economic growth disappoints.

The bank last month trimmed its 2020 growth forecast to 2.8%, compared with an estimated 2.5% for last year. Inflation remains below the new 1%-3% annual target.

As an oil importer and “energy-intensive” economy — Mr. Veerathai said Thailand consumes more energy per dollar of gross domestic product than other countries in the region — the Bank of Thailand is closely watching US-Iran tensions, wary of any spike in oil prices.

Still, the governor said the oil market shouldn’t affect monetary policy in the near future.

“In the short term, I don’t think it would change the current monetary policy stance,” which is still accommodative, he said. In addition, he said, “if oil prices are going to go up, that will lead to a smaller current-account surplus.”

With the benchmark interest rate already at an all-time low of 1.25%, Veerathai suggested the central bank could rely more on macroprudential steps going forward. Overall liquidity in the financial system is ample, but the bank would consider steps to deliver funds to small and medium enterprises, and to assist debt restructuring for troubled companies, he said.

“We have to look at more targeted policy instruments, making sure that liquidity gets transmitted to the sectors that need liquidity the most,” he said.

Mr. Veerathai, whose five-year term is due to expire in September, was coy about whether he wanted to extend it. Only when the selection process for a new governor begins in March will he decide whether to seek another term, he said. — Bloomberg