The Nation (1 November 2007)
Finance Minister Chalongphob Sussangkarn fully supports the central bank's aggressive intervention in the exchange-rate market to keep the baht stable. He has also given the green light to a Bank of Thailand (BOT) request that it be allowed to issue another batch of bonds worth about Bt500 billion. The baht strengthened to less than 34 against the US dollar yesterday. Its strongest level was 33.97 before weakening marginally to close at 33.98/33.99.
With capital inflows into Asia remaining high, central banks around the region have been buying foreign currencies - particularly dollars - in an effort to prevent local currencies rising rapidly against the dollar, Chalongphob explained. He said he had earlier approved an issue of central-bank bonds worth Bt400 billion. This was aimed at absorbing excess baht that threatened to flood the country and cause higher inflation whenever the BOT bought dollars. Bond issues are an expense for the BOT, because it must pay interest to bondholders. However, the loss from exchange-rate intervention is not as important as baht stability. Critics and economists around the world have long accused Asian central banks of hoarding dollars to keep their currencies weak. Chalongphob said that over the past six months, the Malaysian central bank had bought US$30 billion (Bt1 trillion) to keep its ringgit from appreciating rapidly. Meanwhile, the finance minister has ruled out government intervention in energy prices. People have adjusted well to rising oil prices, and they have alternatives like natural gas for vehicles and gasohol, he said. The BOT said the appreciating baht had reduced rising pressure on retail oil prices amid soaring crude-oil prices resulting from geopolitical risks and speculation by hedge funds. BOT senior director Amara Sriphayak said Thailand's retail fuel prices jumped 30 satang a litre for every extra dollar added to the price of a barrel of crude oil in the Dubai market. At the same time, each time the Thai currency strengthened Bt1 per dollar, the local retail oil price was slashed 50-60 satang a litre.
Finance Minister Chalongphob Sussangkarn fully supports the central bank's aggressive intervention in the exchange-rate market to keep the baht stable. He has also given the green light to a Bank of Thailand (BOT) request that it be allowed to issue another batch of bonds worth about Bt500 billion. The baht strengthened to less than 34 against the US dollar yesterday. Its strongest level was 33.97 before weakening marginally to close at 33.98/33.99.
With capital inflows into Asia remaining high, central banks around the region have been buying foreign currencies - particularly dollars - in an effort to prevent local currencies rising rapidly against the dollar, Chalongphob explained. He said he had earlier approved an issue of central-bank bonds worth Bt400 billion. This was aimed at absorbing excess baht that threatened to flood the country and cause higher inflation whenever the BOT bought dollars. Bond issues are an expense for the BOT, because it must pay interest to bondholders. However, the loss from exchange-rate intervention is not as important as baht stability. Critics and economists around the world have long accused Asian central banks of hoarding dollars to keep their currencies weak. Chalongphob said that over the past six months, the Malaysian central bank had bought US$30 billion (Bt1 trillion) to keep its ringgit from appreciating rapidly. Meanwhile, the finance minister has ruled out government intervention in energy prices. People have adjusted well to rising oil prices, and they have alternatives like natural gas for vehicles and gasohol, he said. The BOT said the appreciating baht had reduced rising pressure on retail oil prices amid soaring crude-oil prices resulting from geopolitical risks and speculation by hedge funds. BOT senior director Amara Sriphayak said Thailand's retail fuel prices jumped 30 satang a litre for every extra dollar added to the price of a barrel of crude oil in the Dubai market. At the same time, each time the Thai currency strengthened Bt1 per dollar, the local retail oil price was slashed 50-60 satang a litre.
"The baht's appreciation has partly helped absorb the shock [of the oil-price rise]. The retail price has increased in the fourth quarter only 17.9 per cent, less than the rises a few years ago when the Oil Fund revoked its subsidy on oil prices," Amara said.
So far this year, the crude-oil price in the Dubai market has risen 3.8 per cent year on year, while the baht has strengthened 5.8-5.9 per cent. BOT Governor Tarisa Watanagase said the baht remained in line with other regional currencies, such as the 5-per-cent strengthening of the Singaporean dollar and the ringgit. However, Thailand's real effective exchange rate, which measures competitiveness in terms of the currency and inflation, has been better than that of other countries. "The baht could weaken next year when public and private investment escalates, bringing high imports of capital goods to serve investment expansion," she said.
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