Thailand: Central bank steps in to slow baht slide

The Bank of Thailand has moved to curb the baht’s rapid retreat against the greenback as the local currency hit a nine-month low.¬
The central bank has sporadically taken action against the currency’s weakness by selling the US dollar to smooth out the baht’s movement after it depreciated at a faster¬ pace, lowering foreign reserves, said Bank of Thailand governor Veerathai Santiprabhob.¬
He said the move is normal practice for the central bank.¬
The baht, which was the second-best performing currency in Asia last year, depreciated around 2% so far this year to 33.26 to the dollar, compared with an¬ almost 7% decline in India’s rupee, a 6.5% weakness in the Philippines’ peso, a 5.8% drop in the Indonesian rupiah and almost a 5% fall in the Korean won.¬
Bank of Thailand data reported foreign reserves fell to US$215 billion (7.15 trillion baht) in April, $231 billion in May and $207 billion last month from $216 billion in March.¬
Capital outflows have been spotted in Thai shares and bonds over the past few months, accelerating recently as investors fret over the US Federal Reserve’s more hawkish stance on its¬ monetary policy by signalling two more rate hikes this year, the European Central Bank’s plan to end its bond purchase by the year-end and the tit-for-tat trade tariffs between the US and China.¬
Mr Veerathai said it was the central bank’s duty to manage the baht for both upward and downward movement.¬
“We’ve prepared [built up foreign reserves] over the past two years,” he said.¬
The lower foreign reserves could also be attributed to other foreign currencies’ retreat against the dollar, as the Bank of Thailand typically allocates money into several major¬ currencies for risk management and portfolio diversification purposes, he said.¬
“We’ve forecast that global uncertainties, especially monetary policy manoeuvring by major central banks, would have an impact on the country’s offshore capital flows and¬ local currencies. We’ve prepared sound international reserves to cushion against any shocks,” he said.¬
The Thai economy has adequate buffers to withstand any immediate challenges, with ample international reserves covering 3.5 times short-term external debts; low¬ dependency on external borrowing; and current account surplus of around 8-9% of GDP, he said.¬
Moreover, local banking sector is robust, with high capital adequacy ratio and stable domestic funding.¬
For the January-to-March quarter, the capital adequacy ratio of the banking system averaged 18%, among the highest in the region.¬
Mr Veerathai said the Sino-US trade spat has not yet had an impact on the country’s exports as increased tariffs have been imposed on some industries and goods that do¬ not directly harm Thailand, but an impact on the country’s manufacturing supply chains is expected.¬
In the meantime, the incumbent governor said on the sidelines after the 2018 Asean business summit held by Bloomberg on Thursday that the Bank of Thailand is¬ collaborating with other central banks to develop a regional financial system.¬
The cooperation spans several areas, including promoting regional currency use to facilitate higher Asean intra-trade.¬
Qualified Asean Bank (QAB) is another key policy regional central banks are collaborating on. The Bank of Thailand made its first Heads of Agreement on a¬ reciprocal bilateral arrangement regarding QAB with Bank Negara Malaysia in March 2016. The bilateral arrangement is part of an umbrella agreement for the 10-member bloc called the¬ Asean Banking Integration Framework, which provides greater access for indigenous Asean banks to other members’ banking sectors, as well as operational flexibility on a reciprocal basis.¬