The Bank of Thailand (BOT) has expressed concern that the United States' "fiscal cliff" crisis could make the baht volatile, but believes that in the long term the currency will likely remain stable thanks to Thai direct investment.
Pongpen Ruengvirayudh, deputy BOT governor for monetary stability, lamented the lack of clarity over what the US was doing to avoid a potentially damaging range of tax increases and spending cuts that could automatically kick in next month under a prior agreement to rein in Washington's fiscal deficit.
"People are watching the developments, which are always in flux," Pongpen said yesterday. "Initially, there seemed to be good and fast agreement, but it was not like that later. This issue is a major factor for short-term capital movement."
The baht has not been fluctuating much on relatively balanced capital flows, but the central bank is watching for any impact from the fiscal cliff that could make the unit wobbly in the short term, she said.
In the long term, capital flows are expected to balance out. Foreign investors have been net sellers of the baht while Thai investors have been net |buyers.
In the wake of the Monetary Policy Committee's decision to hold the benchmark interest rate at 2.75 per cent, the money market moved in a normal direction as the decision was expected, Pongpen said.
According to the central bank, the global economic situation recently improved, and that allowed appreciation of the baht from midyear. Between November 1 and 23, the baht was up 2.66 per cent from the end of last year.
"The baht has remained relatively unchanged at 30.60-30.80 per US dollar from October 1 to November 23 mainly on overseas economic and financial situations and investor confidence in the global markets," she said.
October's nominal effective exchange rate strengthened slightly by 0.81 per cent from the previous month on the back of weakening major currencies, particularly the Japanese yen and the US dollar.
The real effective exchange rate gained 0.37 per cent in September.
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