The Finance Ministry is concerned as the baht strengthens to its highest level in over four years, stating that the Thai economy cannot absorb this due to its heavy reliance on exports. It has ordered state enterprises to accelerate machinery imports and manage foreign debt. Meanwhile, the Bank of Thailand has directed gold dealers to strictly control forward foreign exchange transactions to reduce baht volatility and plans to meet with gold shops next week to clarify gold trading reports.
Deputy Prime Minister and Finance Minister Aekniti Nitithanprapas revealed that due to the baht's rapid appreciation—the strongest in four years—the Finance Ministry has been closely coordinating with the Bank of Thailand to monitor the currency situation. The baht's strength is influenced by global financial trends, especially the U.S. Federal Reserve's interest rate cuts, which have caused capital to flow from low to high-yield areas and shifted investment directions.
"I have had close discussions with the BoT governor, but managing the baht is within the Bank of Thailand's autonomous policy authority. We have communicated the understanding that, given the current economic conditions, an excessively strong baht is unacceptable for Thailand's economy. The key reason is Thailand's economic structure remains heavily export-dependent, and such currency volatility or appreciation exceeds what the economy is prepared to handle," he said.
To alleviate the impact of the strong baht, the Finance Ministry has directed relevant agencies to take immediate action: 1) Accelerate government imports by instructing state enterprises and government agencies to take advantage of the strong baht to quickly import machinery or essential goods from abroad; 2) Manage public debt by assigning the Public Debt Management Office to oversee foreign debt repayments. However, this measure is limited since Thailand's foreign debt proportion is not large. Nevertheless, the Finance Ministry is working on all possible measures to help manage the currency.
Pimphan Charoenkwan, Assistant Governor for Financial Markets at the Bank of Thailand, disclosed that the BoT has instructed financial institutions to tighten controls over forward foreign exchange transactions by gold dealers, which could increase baht volatility. Financial institutions must verify gold sales documents with foreign counterparties for every transaction. They must also obtain payment documents and gold customs declarations within two working days from when the gold dealers deliver foreign currency to ensure the foreign exchange sales are genuinely from gold exports. This increased scrutiny aims to reduce currency fluctuations caused by gold trading.
Additionally, the Bank of Thailand is currently soliciting feedback on revised foreign exchange regulations (hearing), proposing that major gold dealers report related transactions to the BoT. This aims to enhance monitoring efficiency, assess impacts on the baht, and inform appropriate policy decisions. Discussions and guidance on reporting procedures for gold shops are expected early next week.
According to a report from Krungsri Bank's Global Markets unit, the baht is expected to continue strengthening this week after reaching its strongest level in three months last week. On Monday, 15 Dec 2023 GMT+7, the baht opened near its strongest level in over four years at 31.53 baht per U.S. dollar, compared to 31.61 baht at Friday's close. This followed the U.S. Federal Reserve chairman emphasizing downside risks to the U.S. labor sector. Domestically, the Monetary Policy Committee is expected to cut interest rates by 0.25% to 1.25% at its 17 Dec meeting to support the economy amid limited fiscal stimulus following the parliament's dissolution. Consequently, monetary policy tools will play a larger role in maintaining confidence. By market close, the baht had further appreciated to 31.43 baht per dollar.