Guest gwm4sian Posted February 29, 2008 Posted February 29, 2008 (BangkokPost.com) - Central bank on Friday decided to remove the 30% reserve requirement on short-term capital inflows imposed by the previous government. Central bank governor Tarisa Watanagase said that the lift will be effective from Monday. "The central bank decided to lift the capital controls because of the improving economic situation," she said. The controls were imposed during the Surayud Chulanont administration in an attempt to control the appreciation of the baht against the dollar. The controls required 30% of all incoming investments to be held by financial institutions for up to one year. Quote
Gaybutton Posted February 29, 2008 Posted February 29, 2008 Regarding the exchange rate, I hope the lifting of the controls doesn't mean "There goes the whole ballgame" for the US dollar. If the dollar depreciates further, then all who depend on the exchange rate can really start laughing. The value of the dollar continues to diminish while prices are rising in Thailand. Quote
Gaybutton Posted March 1, 2008 Posted March 1, 2008 The following appears in THE NATION: _____ BANK OF THAILAND Capital Controls to Go on Monday Published on March 1, 2008 BOT Governor Denies Political Pressure Behind Sudden Move; Rules Out Rate Cuts The Bank of Thailand yesterday decided to remove controversial capital controls and introduce new ways to prevent baht speculation, ending 14 months of the "draconian" measures. The move is effective from Monday. After the announcement, the baht onshore rate rose against the greenback to close at its peak of Bt31.45-Bt31.50, from an opening of Bt31.91-Bt31.94, while the baht offshore weakened to Bt30.40-Bt30.90 from Bt29.45-Bt29.55. Meanwhile, the central bank insisted it would not cut the policy interest rate, though the Thai rate is higher than the US and makes Thailand attractive for capital inflows, which would strengthen the baht. The market earlier believed the revocation would come with a deep policy interest-rate cut of at least 100 basis points from the current 3.25 per cent. The bank said the managed-float exchange rate was suitable, because it was flexible and dealt with global volatility, an important factor that is closely monitored. Bank Governor Tarisa Watanagase yesterday said it considered it "good timing" to repeal the controls. Domestic demand and export growth have been stronger, apparently, since the fourth quarter. A government stimulus package will help restore investor confidence and strengthen domestic demand. Tarisa said the balance of capital movement was experienced due to a decline in the trade surplus in January, increases in investment abroad at US$13 billion in December and resident foreign-currency deposits. Finance Ministry public-debt restructuring and management will help bolster the balance of capital flows, she said. The bank has more instruments to manage liquidity and the baht under the new Bank of Thailand Act. Moreover, manufacturers and exporters can adjust to an appreciating baht through forex hedging, along with improvements in production efficiency, management and market diversification. "There had been widespread expectation we would lift the measure. As a result, market participants have adjusted behavior in line with these expectations. This lessens the efficiency of the withholding reserve requirement," said Tarisa. The bank believed it would be able to counter huge demand for the baht if existing foreign investors totally unwound their forex positions, worth a total of US$5 billion (Bt157 billion at $1=Bt31.4), which would lead to currency strengthening. Tarisa was optimistic foreign investors would not entirely unwind their positions if they had a different view on currency trends. She was hopeful the revocation would not cause exporter panic, and would have a positive psychological effect on the stock market. However, exporters yesterday expressed disappointment with the removal. Earlier, the bank took a strong stance that the measures would be lifted only when it could ensure exporters would not panic, imports increased significantly and volatility in the global finance market declined. Finance Minister Surapong Suebwonglee called a February 12 confidential meeting with the central bank on the measure. Markets expected ministerial pressure on the bank to revoke the withholding reserve requirement. Tarisa insisted she independently removed the measure based on sound economics. There was no political pressure, she said. The revocation was pursued under a joint agreement between the central bank and the ministry, which both found supporting measures to reduce the impact on the baht. "I will not quit, because I am a working person. I insisted it would continue to work. I have not been pressured as reported. We considered it was time to remove supporting measures," she said. Deputy Governor Atchana Waiquamdee said the bank would not manage the currency with interest-rate movements, although appreciation would have an impact on the economy. The policy interest rate could be slashed only when inflationary pressure decreased, she said. The bank will continue to monitor the global economy, but believes the managed-float exchange rate will serve fluctuations, said Deputy Governor Bandid Nijathaworn. The central bank will tell commercial banks about the revocation and details of supporting measures soon. Anoma Srisukkasem The Nation ____________________ And This, from the BANGKOK POST: _____ Capital Controls Lifted The Bank of Thailand announced on Friday it was reversing course and will lift the 30 per cent capital controls effective on Monday. The baht exchange rate immediately leapt nearly 2 per cent to 31.45 per dollar, the highest in nearly 11 years. "The central bank decided to lift the capital controls because of the improving economic situation," said central bank governor Tarisa Watanagase. The controls were imposed during the Surayud Chulanont administration in an attempt to control the appreciation of the baht against the dollar. They require that 30 per cent of all incoming investments to be held by financial institutions for up to one year. Mrs Tarisa had fought the government on lifting the capital controls. The BoT has predicted the baht will rise in value against the US dollar when the controls are gone. The baht has already gained 7.4 per cent this year, the most of any of the top-10 currencies in Asia outside of Japan. Mrs Tarisa said one effect of lifting the controls would be a merging of the local, largely artificial exchange rate with the so-called offshore rate found outside the country - which was 29.7 baht per dollar on Friday. The central bank implemented the one-year, 30 per cent withholding requirement in Dec 2006. It justfied the restriction by saying they would help to maintain the competitiveness of exports by restraining the rise of the baht. The immediate effect of the measure was the biggest one-day stocks selloff in Thai history, and damage to the country's reputation with foreign investors. On Friday, Mrs Tarisa acknowledged the inevtiable, and said that widespread expectations of the lifting of the controls have "eroded their effectiveness." The current government campaigned for election late last year on a platform which included trashing the capital controls. Mrs Tarisa, whose position as head of the Bank of Thailand is now severely threatened, opposed lifting the controls, but eventually lost the battle. She said that "other measures" will be implemented to try to keep the baht as weak as possible. A managed float of the baht remains an appropriate policy, she claimed. The amount that the BoT has spent in its losing effort to keep the baht weak has not yet been made public. It is widely believed to be well over $100 million. Despite the spending, the baht has continued to rise, and is currently at 11-year highs against the US dollar, both at home and in offshore trading. ____________________ And this, from TNA: _____ Thai Central Bank Lifts Capital Controls Monday BANGKOK, Feb 29 (TNA) After a year of implementing reserve withholding measure, by which Thailand forced investors to hold in reserve 30 per cent of all short-term capital flowing into the country, the Bank of Thailand (BoT), the country's central bank, acted Friday to remove the measure, effective Monday. BoT Governor Tarisa Watanagase announced the lifting of the controversial measures to take effect March 3, ending the regime of the unremunerated reserve requirement (URR) after nearly 15 months in effect, a measure that was introduced to rein in the volatility of the Thai baht when demand was falling and "robust export growth was the main driver of the economy". Political and economic players alike have both supported and condemned both the initiation the measures, and the ending of their implementation. Stating that the country's economic performance in the last quarter of 2007 and in January this year indicated that the time was right to withdraw the measures, Mrs. Tarisa indicated Friday that the time had arrived. "Foreign exchange inflows/outflows have become more balanced', according to a BoT statement, with a moderate trade account surplus in January 2008, increasing Thai investments abroad, and regulations permitting residents to deposit foreign currencies as of this month. The appreciation of the baht – whether it will continue, and by how much – is at issue. Mrs. Tarisa told a press conference that the controversial capital controls the BoT had imposed to restrain the country's currency from getting too strong had done the job they were intended to do. The BoT's move follows the policy of the new government of Prime Minister Samak Sundaravej to remove the controls. The central bank's web site is carrying notification of the lifting of the URR measures, rules for non-resident baht accounts and related matters at www.bot.or.th. (TNA)-E006 Quote
