The Bank of Thailand (BOT) insists it has not stepped into the foreign-exchange market recently as demand and supply have been neutral.

Published on December 7, 2007

Suchada Kirakul, the central bank's assistant governor, yesterday said the bank had not retreated from the managed-float foreign-exchange regime to a fixed exchange rate.

"We haven't changed the regime and we have not stepped into the market for days," she said.

"The baht has been stable for days because of the balance of demand and supply in the forex market. Foreign portfolio investment suggests capital inflows and outflows have been neutral. Oil importers have accumulated dollars while exporters have gradually hedged their export incomes."

The baht has been at 33.8 a dollar since November 12 amid reports that the BOT has intervened in the forex market to slow down the appreciation of the currency.

The intervention, along with the weakening dollar, has resulted in huge increases in international reserves. As of November 23, the net reserves were USS$103.4 billion (Bt3.5 trillion), of which $84.6 billion was gross reserves and $18.8 billion was the net forward position. At the end of last year, net reserves totalled $73.9 billion consisting of $67 billion of reserves and $6.9 billion net forward position.

Meanwhile, the Financial Institutions Development Fund (FIDF) is negotiating with institutional investors to sell about Bt6 billion of savings bonds together with Bt50 billion of bonds in terms of private placement.

The Bt6 billion in bonds was left over from a recent sale to retail investors. The fund issued the saving bonds last month to refinance short-term debt in the repo market. "Those who have normally invested in the repo market could invest in the longer-term bonds," said Suchada.

She said the BOT would buy the FIDF bonds if the private placement sale failed. It would issue BOT bonds to also absorb liquidity in the market.

The FIDF could now borrow in the repurchase market as usual before that market is shut down on February 13, she said.

"It is like the fund sells the bonds directly to the central bank and the BOT borrows from others to buy the bonds," said Suchada.

Anoma Srisukkasem