ThaiHome Posted February 2, 2010 Report Share Posted February 2, 2010 BOT lifts limit on outflows By Thanong Khanthong The Nation Published on February 2, 2010 Link Amid growing upward pressure on the baht, the Bank of Thailand has announced bold measures that will allow local firms to take money out of the country without limit and also make it easier for exporters and importers to manage currency risks. The move, which also further relaxes the ceiling for Thai investors to invest in overseas equities, comes after the baht climbed to its strongest level since June 2008. The measures are principally aimed at developing the financial markets, balancing capital flows and reducing the upward pressure on the baht as an enormous amount of money is flowing into the country. The capital inflows through net export earnings, portfolio investment, service earnings or foreign direct investment has driven up the value of the baht and threatened the competitiveness of Thai exports. The baht is now quoted at around Bt32.90 against the US dollar. "These measures are a part of the Bank of Thailand's financial liberalisation policy adopted since 2007," said Dr Bandid Nijthaworn, the deputy governor. The measures are as follows: n No limits on overseas investments for Thai companies. n Portfolio investment of Thai securities and mutual-fund companies and investors under the Securities and Exchange Commission's supervision is expanded from US$30 billion to $50 billion. n Importers and exporters can have full flexibility in managing their currency risks through hedging instruments and derivatives. n Easing of rules on the establishment of overseas corporate treasury centres and money transfers between affiliates . n Increase in the amount for Thai individuals to invest in foreign properties from $5 million to $10 million. n Thai companies are also allowed to lend to foreign companies up to $50 million without having to ask for permission. Earlier, they needed to ask for permission on a case by case basis. "We want the private sector to be able to manage their risk effectively," Bloomberg quoted BOT Governor Tarisa Watanagase as saying. Tarisa said the new rules would impact the baht only "over time". These measures will take effect by the end of February, pending a regulatory announcement from the Finance Ministry. However, the measure expanding the limit for investment in foreign equities and bonds from $30 billion to $50 billion will take effect today. Thirachai Bhuvanat-naranubala, the secretary-general of the Securities and Exchange Commission, welcomed the BOT's foreign exchange liberalisation move. "It marks a gradual step by the central bank to further promote capital market development and create linkages between the Thai market and the regional markets," he said. "The rules will allow greater flexibility for securities companies or mutual fund companies to make their own portfolio investment in the overseas markets. Besides, investors will also have more options to invest in the overseas markets," he added. The latest foreign exchange liberalisation marks an about-turn from December 2006 when the central bank imposed capital controls to ward off massive capital inflows that drove up the baht and threatened to create price bubbles. The central bank then came under attack for introducing the unpopular capital-control measures. Shortly after that the BOT gradually began to ease the rules. The latest liberalisation move came in August last year. Funds flows (Figures pertain to 2009) Foreign direct investment: US$350.75 billion (Bt11.6 trillion) Exports: $150.88 billion Foreign exchange reserves: $138.4 Trade surplus: $19.42 billion Current account surplus: $20.29 billion Balance of payments: $24.13 billion Net capital inflow: $175 million Imports: $131.46 billion Bank of Thailand measures to relax outflow rules: - Thai companies can invest in the overseas without limit - Portfolio investments to be expanded from $30 billion to $50 billion - Importers and exporters can have full flexibility in managing their currency risks through hedging - The amount for Thai individuals to invest in foreign properties is raised from $5 million to $10 million. - Thai companies are also allowed to lend to foreign companies up to $50 million without having to ask for permission Source: Bank of Thailand and Board of Investment Link to comment Share on other sites More sharing options...
Faustian Posted February 2, 2010 Report Share Posted February 2, 2010 Well it's something.... Link to comment Share on other sites More sharing options...
Dexi Posted February 2, 2010 Report Share Posted February 2, 2010 Suppose it fits in with the general theme of investors shifting away from developed western markets with their problems of large govt. debts and unemployement and hoping for better returns in the emerging markets area. Link to comment Share on other sites More sharing options...
ThaiHome Posted February 3, 2010 Author Report Share Posted February 3, 2010 This is an attempt by the BOT to try and offset the capital that continues to pour into the country by letting Thai companies and investors move capital offshore. The inflows are due, as you say because foreign investors are looking for opportunities in developing countries, and Thailand is high on the list. On a personal level I am happy with just about anything that theoretically can weaken the Baht. Conversely, I am happy on a professional level with the strong Baht as our local books are in THB, but are translated into USD at the corporate level, so it looks like we make more USD. TH Link to comment Share on other sites More sharing options...
ThaiHome Posted February 3, 2010 Author Report Share Posted February 3, 2010 EDITORIAL No material impact from latest forex liberalisation By The Nation Published on February 3, 2010 Link Moves to allow greater capital outflows will not have a great short-term impact on the strength of the baht The Bank of Thailand has just announced a series of measures to further liberalise its controls on capital outflow. This process has been going on over the past three years as the banking authorities try to combat the baht's upward trend. The fundamental problem is that there is more capital flowing into than out of the country. Net exports, in particular, have resulted in the increase of Thailand's international reserves. With more money flowing in than flowing out, this has put pressure on the baht to rise. The end result is that a higher baht hurts the competitiveness of the Thai economy as a whole. Under the latest capital liberalisation package, the central bank has removed limits on direct investment abroad by Thai companies. This measure will help boost the competitiveness of Thai companies, which are being encouraged to make more investments overseas to expand their businesses. At present, most Thai companies are concentrating on the domestic market. The central bank has also lifted the overall ceiling on portfolio investment abroad by Thai residents from US$30 billion to US$50 billion. This area is under the supervision of the Securities and Exchange Commission. Securities companies or mutual fund companies will have more room to carry out their own proprietary trading in the overseas markets. Moreover, Thai investors can also increase their investment exposure in overseas financial markets. However, the outflow in this portfolio investment sector still proceeds at a cautious pace. Even with the cap of $30 billion, Thai securities companies, mutual fund companies and individuals still only have a combined exposure of slightly more than $20 billion in overseas portfolio investments. In addition, the central bank has also allowed exporters and importers to unwind foreign exchange hedging transactions without having to ask for prior permission. It has also relaxed regulations on transfer of funds from corporate treasury centres to affiliated companies in Thailand. The amount that Thai individuals wishing to purchase overseas properties can remit outside the country has been increased from $5 million to $10 million. This measure is likely to create more outflow for wealthy Thai individuals or companies to invest in foreign properties. This relaxation has also been approved by the Ministry of Finance, which is likely to issue a regulatory announcement by the end of this month. All of these liberalisation measures represent gradual steps towards the central bank allowing capital out of the country more freely. The Bank of Thailand has taken lessons from the 1997 financial crisis seriously, when it lost most of its foreign reserves from a sudden capital outflow. So any new moves to facilitate capital outflow are going to be handled cautiously, in step with the development of the Thai financial markets. In effect, these regulations may not significantly alter the balance of payments position of Thailand because capital inflow will still outpace the outflow. Moreover, the long-term trend is still in favour of the baht against the US dollar. The baht is now moving in tandem with the regional currencies. Any hope that the regulations will result in a weaker baht is not likely to come to pass. Thai exporters will still have an incentive to hedge their expected receipts. Allowing exporters freedom to unwind hedges would technically put pressure on the baht to depreciate. However, such unwinding would be unlikely as long as long-term expectations are for the baht to appreciate. "On the whole, the measures announced thus far are not expected to materially alter the balance of payments in the next couple of years, although they might lead to larger outflows eventually," said DBS Global Research in its report issued yesterday. We quite agree with this assessment. Link to comment Share on other sites More sharing options...
cavanami Posted February 4, 2010 Report Share Posted February 4, 2010 BKK Bank shows: 32.67 this morning, so the baht got a little stronger vs the USD! Link to comment Share on other sites More sharing options...
Faustian Posted February 9, 2010 Report Share Posted February 9, 2010 51.8 Baht to the Pound. The Baht strengthened even more! This is the worst it's been for a while. So the policy, in the short term, has had the opposite effect. Link to comment Share on other sites More sharing options...
ThaiHome Posted February 10, 2010 Author Report Share Posted February 10, 2010 The THB/GBP rate is pretty driven by the GBP/USD rate as there is little market for the THB/GBP. The dollar has fallen against the pound from 1.59 on 2 Feb to 1.56 yesterday, so that is what makes the baht look stronger against the pound. Against the dollar, the baht has continued to trade in a range from 33.09 on the 2 Feb to 33.12 yesterday, so it has actually weakened just a little bit. It did go below 33 on Monday, the 8th, but it usually starts the week out strong then weakens a bit through the week. TH Link to comment Share on other sites More sharing options...
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