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BoT: Baht must remain competitive
Bangkok Post – 14 November 2008
PARISTA YUTHAMANOP
The Bank of Thailand will continue to monitor exchange rate movements to ensure that the baht remains competitive versus other regional currencies, says Suchada Kirakul, a central bank assistant governor. She said that the baht, which is now trading near 35 to the US dollar, had fallen by 3% to 4% this year as a result of steady capital outflows. The unit was in between stronger currencies such as the Chinese yuan, Japanese yen and Singapore dollar and weaker ones such as the Korean won, Indonesian rupiah and Philippine peso.
''The central bank has looked to ensure that the baht moves in line with other regional units to minimise the impact on export competitiveness. The baht has not been much weaker or stronger than other currencies,'' Mrs Suchada said.
''Capital flows, in fact, are currently stable. While there are outflows, there are also inflows, such as new investments in the banking sector.''
Some industry groups have called for the central bank to allow the baht to weaken further to help support exporters amid slow demand due to the global recession.
According to the central bank, based on the real effective exchange rate, which weighs the baht against the currencies of major trading partners after inflation, the baht has lost some competitiveness in recent months. The REER stood at 89.78 in September, compared with 89.14 in August and 94.90 in May.
Mrs Suchada said the central bank expected the current account to show a balance in international trade and services in 2008. The central bank also projected that capital flows would record a balance this year.
She added that the central bank's Monetary Policy Committee on Dec 3 would consider whether its inflation target can be maintained in deciding on interest rates. The central bank now views that the inflation risk has declined, while growth risk has increased, Mrs Suchada added.
The MPC's one-day repurchase rate, now at 3.75%, is widely expected to be cut due to declining inflationary pressure and the slowing economy.
Mrs Suchada added that the central bank could consider not rolling over existing outstanding short-term bonds to ease liquidity constraints in the market, particularly as the government moves to issue new bonds to finance the budget deficit.
She said the new 100-billion-baht supplementary budget for fiscal 2009 would be a key for stimulating domestic demand.
Santi Vilassakdanont, the chairman of the Federation of Thai Industries, said the central bank should cut its key rate by a full percentage point to lift business confidence.
He said the FTI also called on the government to consider cutting corporate tax and personal income taxes and extending the temporary cut in property business taxes to stimulate the economy.
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