Bank of Thailand steps in to curb recent baht strength
Bank of Thailand accelerates measures to advance the development of the new Thai FX Ecosystem and to limit excessive currency volatilities
In a press release published on the 20th of November, the central bank’s Monetary Policy Committee (MPC) has expressed concerns over the rapid appreciation of the baht as this affects the fragile economic recovery.
The baht has strengthened by 4.3% against the dollar since the last MPC meeting on Sept 23, third after the Indonesian rupiah (5.3%) and Korean won (5.2%).
Ms. Vachira Arromdee, Assistant Governor for Financial Markets Operations Group, revealed that the US presidential outcome and the progress of the Covid-19 vaccine development have strengthened confidence in the global economy, resulting in renewed inflows into emerging market economies, including Thailand.
The MPC voted unanimously last week to maintain the benchmark policy rate at 0.5% to support economic recovery, saying the economy is expected to recover slowly and needs support from the loosening policy interest rate.
In addition, to further mitigate pressures on the currency and to address structural issues in the Thai foreign exchange market, the Bank of Thailand has released additional measures as follows.
1. Allow residents to freely deposit funds in Foreign Currency Deposit (FCD) accounts
And allow free fund transfers between them. This will enable exporters to effectively manage liquidity and foreign exchange risk. It allows residents to conduct FCD transactions electronically, which reduces transaction costs.
FCD accounts may also be used for residents to diversify investment into assets denominated in foreign currencies such as foreign equities and gold denominated in US dollar.
2. Relax regulations regarding investment in foreign securities
These include increasing investment limits and expanding eligible financial products, in order to expand investment options for residents and enhance portfolio diversification.
1) Increase investment limit for retail investors from 200,000 US dollar per year to 5,000,000 US dollar per year. Moreover, there is no investment limit in foreign securities through local financial institutions such as brokerage firms and asset management companies.
2) No investment limit in foreign assets for investors regulated under the Securities Exchange Commission (SEC).
3) Allow the listing in Thailand of foreign securities such as Exchanged Traded Funds (ETF) that track foreign securities.
3. Require a Bond Pre-Trade Registration
Prior to investing in Thai debt securities, investors are required to complete a registration process. Pre-registration will upgrade the bond surveillance system which will allow close monitoring of investor’s behaviours and thereby enable the implementation of targeted measures in a timely manner.
Similar registration measures have also been adopted in various other countries such as South Korea, Malaysia, and Taiwan.