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Thailand mulls control on capital inflows to tame rising baht

Thailand’s Finance Ministry has announced a move to write a new regulation to control inflows and outflows of foreign capital

Olivier Languepin

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Thailand’s Finance Ministry has announced a move to write a new regulation to control inflows and outflows of foreign capital, a senior cabinet member said. Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong told reporters after the cabinet meeting yesterday that present regulations limit only foreign capital outflows.

The BoT may simply inform the Finance Ministry if it decides to do so, he said. Any decision on the policy interest rate rests with the Monetary Policy Committee MPC, said Mr Kittiratt. He said the MPC, in deciding on the interest rate, should ensure that the baht would not be too strong compared to regional currencies in order to contribute to the country’s economic growth as targetted.

Thailand's Finance Ministry has announced a move to write a new regulation to control inflows and outflows of foreign capital

Thailand’s Finance Ministry has announced a move to write a new regulation to control inflows and outflows of foreign capital

Most economists believe that the Bank of Thailand will today cut the policy rate, while some are convinced that the central bank will put the rate on hold. Despite the differences, they share the view that weak economic data in the first quarter has paved the way for monetary easing.

But yesterday Central bank governor Prasarn Trairatvorakul gave reassurances today that the Monetary Policy Committee (MPC) will not be pressured in its decision on the policy interest rate tomorrow.
Speaking to reporters after attending the weekly cabinet meeting, he said the MPC’s judgement is based on suitability and its decision on interest rate solely depends on the MPC, not the Bank of Thailand (BoT).

Prime Minister Yingluck Shinawatra summoned the BoT and the National Economic and Social Development Board (NESDB) to today’s meeting to straighten out differences between the two state agencies on Thailand’s Q1 gross domestic product (GDP) growth.

Thailand’s current policy interest rate is 2.75 per cent

The finance minister has called for a reduction by 0.5 per cent while the private sector wanted it to be lowered by 0.25 per cent. Prime Minister Yingluck Shinawatra said the cabinet endorsed an integrated economic plan on monetary and financial policies which should be implemented within six months.

This is an urgent measure, while a longer-term plan will be mapped out and reported to the cabinet, she said. Yesterday’s cabinet meeting was attended by economy-related agencies including the ministries of finance, commerce, agriculture and industry, BoT and the National Economic and Social Development Board.

The BoT governor said the government’s measures to stabilise the national economic system is one of the attempts to rein in the volatile Thai currency. He gave assurances that the central bank’s measures have covered all aspects and, if implemented, will prepare Thailand for any economic challenges. MCOT online news

via New financial rule to control capital inflow, outflow | MCOT.net | MCOT.net.

A framework for maintaining Thailand’s economic stability in 2013

The Cabinet, during its meeting on 28 May 2013, approved a framework for maintaining Thailand’s economic stability in 2013 to deal effectively with financial risks, as a result of the appreciation of the baht.

The Office of the National Economic and Social Development Board and the Ministry of Finance reported to the Cabinet that the Thai economy was facing risks from slow recovery in the global economy and quantitative easing measures implemented by several major countries, such as the United States, Japan, and the United Kingdom.

These measures, as well as currency wars, have resulted in capital inflow to the Asian region, and the value of the baht has become stronger than that of other currencies in this region.

The appreciation of the baht has affected Thai exports and services

This situation is likely to delay the Government’s disbursements for investment in mega-projects. Another negative factor is a risk of a new round of the global economic crisis.

In order to stabilize the Thai economy and sustain growth, the Office of the National Economic and Social Development Board and the Ministry of Finance came up with the framework for Thailand’s economic stability in 2013.

Concerning immediate measures, the framework seeks to ensure that the baht will not be too strong to affect the potential of the Thai economy. At the same time, it seeks to create sustained economic growth of 5 percent. Income generation will be promoted through exports, tourism, and overseas investment. Economic and tax structures will be adjusted to enhance Thailand’s competitiveness and promote sustainable growth.

Regarding monetary measures, the Bank of Thailand will be encouraged to ensure that the policy rate is in line with the economic situation and macro prudential measures will be implemented. Assistance will be provided for small and medium-sized enterprises (SMEs) in order to ease impacts from the appreciation of the baht.

As for fiscal measures, relevant agencies were told to ensure that investments of state enterprises would be in line with the set target. The private sector will be urged to invest more in foreign countries.

The tax structure will be reformed and SMEs will be provided with guarantees to protect them from the volatility of the baht.

The framework for Thailand’s economic stability also consists of specific measures to support production and services, exports, investment, and people’s income. For instance, farmers’ income will be upgraded. The proportion of SMEs will be increased to 40 percent of GDP. Large industries will be urged to expand investment and develop technology.

Concerning tourism, efforts will be made to increase international tourist arrivals to 24.7 million in 2013 and the country’s tourism revenue will be doubled by 2015. In addition to achieving the 2013 export growth target at 9 percent, other measures also call for energy security with reasonable prices and cost reduction for low-income earners.

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