Baht warning for Democrats

The Nation (27 October 2007)

Finance Minister Chalongphob Sussangkarn yesterday warned the Democrat Party that its policy to scrap the central bank's 30-per-cent reserve requirement would shoot the value of the baht up without any measures available to curb capricious movements.

Democrat leader Abhisit Vejjajiva recently said that if his party formed the next government, he would lift the Bank of Thailand's capital controls to boost investor confidence.

Chalongphob said the global currency market was still fragile with high volatility of capital flows. He said it was the global trend for the US dollar to weaken and middle-income countries like Thailand and India to risk rapid capital inflows. "If the world market is normal, capital controls are not needed," he said.

For the past month, the central bank has intensively "monitored" the currency market and kept the baht from rising too rapidly, while regional countries have seen their currencies soar sharply, he said.

Inflation has been under control despite the recent steep surge in global oil prices, thanks to the central bank's focus on inflation pressures, he said.

The dollar would weaken further and draw capital flows into middle-income countries, building pressure against the exchange rate. A sharp appreciation of the baht would hurt export competitiveness, he added.

Korn Chatikavanij, deputy secretary-general of the Democrat Party, said capital controls might not be the answer to baht instability.

He attributed the recent rise of the baht to an imbalance in baht/greenback demand, as seen by the growing trade and current-account surpluses. Consumption has been slowing down while the export sector was ramping up. This has led to higher demand for the baht against lower demand for the dollar, leading to the baht's rise.

He said capital controls did not address the baht problem. The central bank has other tools that are more effective in steadying the baht, such as buying up greenbacks.

Meanwhile, the stock market jumped to a fresh 11-year high of 911.6 points before closing flat yesterday at 894.57, with foreign investors snapping up energy and banking shares. Turnover was Bt33.46 billion. Foreign investors made net purchases of Bt5.05 billion, while institutional and retail investors were net sellers by Bt888.83 million and Bt4.16 billion, respectively.

An analyst from Trinity Securities said the SET rallied mainly on foreign appetite for energy and banking blue chips. Energy stocks have been boosted by rising global oil prices, which set a new record of US$92.09 (Bt3,144) per barrel at WTI and $88.39 for Brent crude oil.

The Trinity analyst said local energy stocks were cheap with a price-earnings ratio of only 11 compared to 18-20 times at other markets in Asia. That makes Thai energy stocks attractive and pushes up the whole stock market. The current resistance level of the SET is 920, he said.

Tisco Securities sees the SET Index reaching 1,000 in January due to the "January Effect" as well as expectations of economic recovery after the new government is set up. The current market volatility presents an opportunity for investors to stock up on Thai companies. The securities house said the SET Index should reach 900-930 next month.