Bank of Thailand Says baht will stay strong at least 1 more year

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The following appears in the BANGKOK POST:

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BoT: Get Used to a Stronger Baht

 

PARISTA YUTHAMANOP

 

Thai businesses need to prepare for a stronger baht that will reflect a growing shift in foreign investment away from dollar-denominated assets, according to the Bank of Thailand. M.R. Pridiyathorn Devakula, the central bank governor, also said that the economy of Thailand would experience greater volatility in foreign capital flows until the end of 2007.

 

Global investors, he said, were growing increasingly wary about the dollar because of the huge US trade and current account deficits.

 

''The United States current account deficit is now $2 billion per day, equivalent to nearly $800 billion annually. Its economy is being financed by as much as $7 trillion worth of external borrowing,'' he said.

 

Investors' worries over the sustainability of the dollar triggered huge inflows to Asian markets earlier in the year.

 

''The magnitude of the volatility will be less later this year and in 2007. But it will occur more frequently during the period,'' M.R. Pridiyathorn said at a dinner hosted by Chulalongkorn University's Engineering Alumni Association on Thursday night.

 

He said the central bank was ready to intervene in the currency market not to let the baht appreciate too much.

 

''The central bank will take care of the baht as best as possible, but businesses need to make up their minds that the baht will not stay weak as it used to do.''

 

M.R. Pridiyathorn said private investment would recover in the second half of the year and be the leading driver of economic growth in 2007.

 

''Capacity utilisation, which stood at 76% on average in the first half of the year, was higher than the pre-crisis level. Some industries had full capacity utilisation, several have 80-90%. That, coupled with the fact that inventories have been low, will underpin the turnaround in private investment in the future.''

 

Easing political uncertainties following the Oct 15 election would be another positive factor for private investment.

 

M.R. Pridiyathorn said domestic consumption was expected to remain stable, though export growth could decline, due to a slowdown of the world economy.

 

He said this year's political troubles had not resulted in a decrease in fiscal spending by as much as had been expected. Fiscal spending is expected to speed up in the fourth quarter due to the government's attempts to accelerate disbursement of tied-over budget funds.

 

In any case, he said business should take leading role in the driving growth, as 70% of gross domestic product was generated by the private sector.

 

''Businesses should carry on, regardless of the political situation. Don't be afraid of the ghost,'' M.R. Pridiyathorn said.

 

The central bank expects economic growth to stay above 4.5% this year, and has set a broad range of 4-5.3%, assuming that the oil prices average $71 per barrel for Dubai crude.