TotallyOz Posted February 11, 2008 Posted February 11, 2008 From Bangkok Post: The baht could reach 31 to the dollar this week if the 30% capital controls are cancelled, according to local bankers. On Friday, Prime Minister Samak Sundaravej said the government could scrap the 30% capital controls as early as this week. The previous day, Finance Minister Surapong Suebwonglee was more guarded in his words, saying only that he would meet with the Bank of Thailand to review the existing controls and discuss possible alternatives. The capital controls were first implemented in December 2006 to help stem speculative inflows and ease pressure on the baht to appreciate. The central bank has since largely eased the controls to facilitate investment and inflows. The baht, which traded Friday at 32.9 to the dollar, has moved mostly in line with regional currencies over the past several months. But analysts say the baht could bounce strongly on sentiment factors if the controls are scrapped. Piya Sosothikul, an executive vice-president at Bangkok Bank, said that if the capital controls were scrapped and the central bank allowed the baht to move freely, rates would hit 31 to the dollar relatively quickly. ''The volume of the baht in the offshore market is estimated to be 5% to 10% of the total volume of baht currency traded in global market,'' he said. Offshore rates, at 29 to 30 baht to the dollar, are much stronger than onshore rates due to supply imbalances created by the capital controls. Changes to the controls would see the rates converging. ''What is certain is that scrapping the controls would lead to inflows into the stock market,'' Mr Piya said. Inflows would be made to not only take advantage of recent declines in market prices, but also to speculate on further appreciation of the baht, which would increase returns in dollar terms. Expectations that the gap between US and local interest rates will increase could also fuel additional capital flows. The US Fed Funds rate now stands at 3%, and is expected to fall again to 1.5 points by the end of the year. Thai one-day repurchase rates are now at 3.25%, and are unlikely to decline sharply this year due to rising inflation pressure. Mr Piya said any change in the capital controls should be made gradually. ''From my personal view, it would be better if a cancellation was made in steps, with a clear schedule outlined for the public,'' he said. Any change would have advantages and disadvantages, Mr Piya said, adding that a stronger baht would benefit the country in the form of cheaper import costs for capital goods. Apisak Tantivorawong, president at Krung Thai Bank, said the 30% rule, in practice, had not affected the markets except for the bond market. ''I think if the government wants to scrap the rule, it needs to have additional measures ready. Any change should be made gradually,'' he said. http://www.bangkokpost.com/Business/11Feb2008_biz22.php Quote
