By: James Robert Haft
Thai traders and economists continue to scratch their heads about the Thai Baht’s stellar performance. According to the Bank of Thailand (BOT), as of Friday morning, 28 November 2019, the Sight Bill average buying rate remained under THB30 at 29.9730 while the average Interbank Exchange rate was 30.234 THB/USD.
At the start of 2019, the rate was 32.33 THB/USD. This means that the Thai Baht has appreciated by over 7% as the year comes to an end. At the same time, it has appreciated by 9.1% and 6.2% against China's yuan and Japan's yen respectively. All this would make a person think that the Thai economy is booming with exports and foreign exchange growing.
However, this is not the case. The Thai GDP has actually contracted over the last 11 months from 3.7% in the fourth quarter of 2018 to 2.4% at the end of September 2019 with Thai exports of goods and services dropping by 6.1% so far this year.
Why is this happening? The Bank of Thailand has been hard put to find an answer. The Thai Baht does not seem to be performing as it should be according to accepted economic theories. The value of the Baht should not be falling while market demands for Thai goods and services continue to drop.
To counter this, on 6 November, the BOT’s Monetary Policy Committee (MPC) cut the policy interest rate to a record 1.25%, a similar action to what they took in 2009 to counter the global economic crisis.
At the same time, the MPC decided to implement additional monetary stimuli such as the relaxation of foreign exchange regulations “to alleviate pressures on the Baht and help the private sector to better manage exchange rate risks,” explained assistant BOT governor and MPC secretary Titanun Mallikamas.
Among these measures aimed at helping businesses reduce transfer costs and manage foreign exchange, exporters will now be allowed to keep proceeds of up to USD200,000 per bill of lading abroad, an increase from the previous USD50,000 threshold. Those exporters who exceed the new limit will be allowed to apply their foreign revenue earnings to offset currency expenses without prior BOT approval as long as they register with the national bank first. The BOT also plans to streamline rules on foreign currency deposit (FCD) accounts held with offshore banks.
To assist retail investors, the BOT will now let them invest up to USD200,000 per year in foreign securities without being required to use a Thai intermediary institution. The aggregate investment limit has also been increased to USD150 billion to facilitate increasing demand.
Outward transfers have also been made easier as they will now be freely allowed, except for a few specific purposes, like TX/THB transactions with foreign financial institutions. This means that individuals will be able to transfer funds to relatives abroad whenever they want and spend up to USD50 million per year to purchase real estate in other countries. Furthermore, there will no longer be the need to submit documentation to commercial banks to conduct an outward transfer of funds up to USD200,000.
Finally, the BOT will now allow investors to trade gold in foreign currencies with designated gold trading companies approved by the BOT.
The BOT hopes these measures will take some of the pressure off the Baht and the export sector that accounts for 60% of the Thai GDP.