Central bank governor defends currency intervention

The Bank of Thailand’s limited interventions in currency markets are a necessary and legitimate defense against global hot money inflows that disrupt and distort currency values, and should not be regarded as manipulation, the governor of the central bank said last week, amid increasing global attention to trade and currency values.

To support his contention, Bank of Thailand Governor Veerathai Santiprabhob noted that Thailand’s currency, the baht, has risen despite complaints from Thai businesses that the stronger currency is making exports less competitive. The baht has risen by more than 3 percent so far this year against the U.S dollar.

“I don’t think anyone has evidence that Thailand has manipulated the currency to gain an unfair competitive advantage,” Veerathai said. “Thailand has not adopted any exchange-rate policies to gain an unfair competitive advantage in trade.”

Just last week, Chen Namchaisiri, chairman of the Federation of Thai Industries (FTI), urged the government to take action to rein in the rising baht because it is hurting exports. He added that the hot money flows have also increased the currency’s volatility, which also makes it difficult for exporters to manage their businesses.

Veerathai also cited volatility as a reason for the central bank’s limited actions. “At times, we might have to intervene in the foreign-exchange market but that’s largely because of the intense capital inflows that we are on the receiving end of,” Veerathai said. The inflows “have been coming in in a short period of time that could create adverse consequences,” he said.

To counter volatility, the Bank of Thailand has cut the supply of some debt this month and the governor said it could consider further steps should volatility continue to increase.

“Foreign-exchange intervention is definitely a measure that all central banks need to have on the menu list but there are also other policy measures that one can look at, from market-based measures to the likes of capital-flow management measures,” he said.

Some Thai exports, the main driver of the economy, have struggled in recent years either because of economic weakness in key markets, or because they have become less competitive, with price being a factor.

The Commerce Ministry reported that Thailand’s exports fell by 2.8 percent year-on-year in February to $18.5 billion after rising 8.8 percent in January and 6.2 percent in December 2016.

“Any easing back on foreign-exchange intervention by the [Bank of Thailand] could result in further near-term baht strength, in the absence of any meaningful pick up in outflows,” Khoon Goh, Singapore-based head of Asia research at Australia and New Zealand Banking Group, told Bloomberg business news.“They are worried about baht appreciation.”