Friday, February 15, 2008

JPMorgan Estimates Thailand Unlikely to Relax All Capital Restrictions

by Michelle Roberts

According to JPMorgan Chase and Company, the central bank of Thailand will not relax all the curbs on foreign capital that comes in the country, because the bank wants to slow gains in currency and secure the interest of exporters. The Bank of Thailand in December 2006 had enforced restrictions on equity and real estate funds. However, now, it has lifted some of those restrictions, though restrictions on foreign bond investments and non-resident bank accounts are still not lifted. The onshore gain of the baht for the current year was 2.5% against the dollar and thus outranking the ten most bought and sold Asian currencies and emerging as the top performer. The two foreign exchange strategists Claudio Piron and Yen Ping Ho, with JPMorgan in Singapore told their clients that their overall view was that the Bank of Thailand will not altogether relax the capital curbs.

The premier of Thailand, Samak Sundaravej had said that his government is thinking to relax the curbs imposed on the inflow of overseas capital to encourage the economic growth. Surapong Suebwonglee, finance minister of the country, said that the government will take the decision by April in relaxing the remaining curbs. He was speaking after the meeting with Tarisa Watanagase, governor of the central bank in Thailand, wherein they reached no agreement. As per the data of February 13, the onshore rate of baht was 32.88. Earlier, the currency had attained 32.83 against the dollar, which was the highest rate for the currency since August 1997; the offshore gain of baht was up by 0.7% and stood at 31.98. As per the rules of the central bank, investors taking out cash within a year from bonds are liable for penalty. Debt investors in March were awarded a waiver on the condition that fluctuations in the baht affected them and if it is proven so.

It was also mandatory for foreign investors to have different non- resident bank accounts for bonds and security investments. When the standard stock index tumbled by 15%, equity investors got exemptions from the curbs on December 19, 2006. Chief Asian economist at BNP Paribas in Hong Kong, Andrew Freris, expressed that the government really jumbled in the beginning and when the curbs are lifted, nothing should replace it to control the baht. Imposing curbs is easier than lifting them, the economist further added. Though the central bank is under political pressure to relax the curbs, officials are worried about the baht climbing to 31.

The central bank of Thailand said that considerable fluctuations in the currency are not desired and wants the baht to progress together with its regional currencies. Atchana Waiquamdee, the deputy governor of the bank, said on February 7, 2008, that the bank sold bonds to financial institutions valued at 1.3 trillion baht or $39.5 billion in 2007 to soak in surplus liquidity, so that the appreciation of the baht can be controlled. Bond and currency dealer in Tokyo at Okasan Securities Co. in Japan, Tsutomu Soma, expressed that abrupt and considerable policy change is harmful for investors in the long run.

 

 

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