BANGKOK, THAILAND – Thailand’s central bank announced emergency steps to weaken the surging baht in a bid to shield exporters and the tourism industry.
Baht’s rapid rise alarms policymakers
Since the beginning of the year, the baht had gained 7 percent against the US dollar, making it the second-strongest currency in Asia. While this strength pleased some investors, it turned holidays in Thailand more expensive for foreign visitors and squeezed the competitiveness of local producers.
“The upward trend of the baht is seen as a threat to the competitiveness of the export and tourism sectors.”
said the Bank of Thailand (BoT) in an official statement.
Gold trade targeted to curb speculation
A key focus of the BoT’s plan was the gold trade, which was often used for speculative foreign-exchange deals that pushed the baht higher. Banks were instructed to tighten their controls on gold-related foreign-exchange transactions.
In addition, large gold dealers were to be required to report their transaction data to the supervisors, in order to curb opaque capital flows and improve oversight.
Tax relief aimed at easing currency pressure
Another instrument involved tax policy, with the BoT planning to propose changes to the Finance Ministry. The bank wanted the tax-free threshold for foreign income to be raised.
In future, up to 20 million baht (about 500,000 euros) per transaction would be allowed to remain abroad tax-free, compared with just 1 million baht previously. This was intended to give companies more flexibility and reduce pressure to repatriate foreign currency to Thailand, thereby easing upward pressure on the baht.
Room for further interest rate cuts
BoT Governor Vitai Ratanakorn indicated on Monday that there was “room for interest rate cuts.” However, he warned that the impact on an economy burdened by structural problems would be limited.
The central bank had already cut its key policy rate four times in the previous year, bringing it down to 1.50%, a three-year low. The next policy meeting on 17 December was widely anticipated, with many economists expecting another cut to support the weakening economy.
Central bank braced for volatile currency
The announced measures underscored how serious the situation had become for Thailand’s policymakers. The central bank stressed it would
“monitor any volatility of the baht closely and act in order to reduce the impact on companies.”
said the central bank.
For Thailand’s export sector and the recently recovering tourism industry, any further appreciation of the baht posed a direct risk. The central bank chief made clear that all options remained on the table as the country wrestled with the costs of a strong currency.