Baht Falls 1% due to Restriction of Strong Baht and Deduction of Non-Residential Account

Last Friday on 12 July 2019, Bank of Thailand has announced the measure to curb short-term inflows and restrict the currency’s gains to prevent a strong baht which currently starting to have an effect on the economy. BOT stated to reduce the limit on outstanding non-resident baht accounts to THB 200 million (USD 6.5 million) from THB 300 million baht effective July 22.
Vachira Arromdee, an assistant governor for Financial Markets Operations Group said “the BOT will continue to closely monitor the Thai baht movements as well as non-resident behaviors, and stand ready to use additional measures if undesirable speculative behaviors persist.”

After the measure has announced, The baht fell almost 1% against the dollar following the announcement, paring its 2019 gains to about 5%, however, Thai baht, which is still Asia’s best-performing currency for the year, was down 0.9% to 30.898 per dollar as of 5 p.m. in Bangkok on 12 July 2019.

Jitipol Puksamatanan, Krung Thai Bank’s chief strategist in Bangkok stated “the latest measures aren’t really effective in the long run.”
“The BOT used to do this in 2017, but it can’t stop the baht from appreciating further. The amount of restriction is smaller and smaller, and suggest that there is no room for this kind of capital control policy.” A signal for an interest-rate cut may do more to stem the currency’s gains, Jitipol said.

Although the BOT has maintained the interest rate since last year in December, it would be ready to adjust its policy rate should risks rise.

Moreover, Chantavarn Sucharitakul, Assistant Governor, informed that BOT does not expect the measure being issued on 12 July 2019 to have an immediate impact. “It’s a preventive measure to mitigate the impact from inflows of short-term funds in the future.”

The possible currency measures were added in minutes of its latest monetary policy committee meeting and it’s become increasingly worried about the negative effects of the baht on the export-reliant economy. In addition, the BOT last month lowered its growth projection for 2019 to 3.3% from 3.8% and forecast zero expansion in exports.