Thailand central bank rules out baht devaluation

Thailand central bank rules out baht devaluation

BANGKOK (Reuter): The Bank of Thailand (BOT) yesterday ruled
out a devaluation of the baht as a policy option to tackle the
country's current economic problems.

"The Bank of Thailand wishes to reiterate its firm stance that
devaluation of the baht is definitely not a policy option to
tackle Thailand's current economic problems," the central bank
said in a statement.

It added that the baht was not fundamentally overvalued and a
devaluation would do more harm than good to overall economy.

"The BOT therefore remains firmly committed to maintaining the
integrity of Thailand's current exchange rate regime which has
been and will continue to be an appropriate system for Thailand,"
the central bank said.

The baht was firmer early yesterday as players in the market
were reluctant to buy the dollar at current levels amid ideas the
greenback may have been overbought, dealers said.

At 0308, the baht was bid/offered at 26.010-26.030 against the
dollar against 26.050-26.060 late on Monday.

Some foreign analysts have bet on a baht devaluation recently,
saying that the country's wide current account deficit, slowing
economy and sluggish exports growth could be remedied somewhat by
such a move.

But the central bank and the government have been resolutely
against any devaluation for some time and rejected such calls.
Some officials said it would be politically difficult for the
government to devalue the currency.

The central bank is also estimated by some analysts to have
spent anywhere between US$3-$10 billion since late last year to
defend the baht which came under pressure from attacks by
offshore speculators since last November.

The firming U.S. dollar pushed the baht-dollar mid-rate fixed
daily by the central bank down to over five-year lows recently.

The baht is at present pegged to a basket of currencies
believed to be dominated by the U.S. dollar. The current exchange
rate regime, which has been in place since November 1984, has
made the baht one of the most stable currencies in the region but
also an easy target for speculators.

"The stability of the baht has helped promote Thailand's rapid
advancement in trade and investment for over a decade," the
central bank statement said.

"The recent sharp appreciation of the U.S. dollar has led to
some weakening of the baht against the U.S. dollar, but in real
effective terms, the baht remains fairly valued," it said.

The central bank stressed that the country's wide current
account deficit resulted from high rate of investment and not a a
problem of currency misalignment.

It said the government's tight fiscal policy which recently
led to massive 99 billion baht ($3.8 billion) in spending cuts
would address the problem.

The government forecast that after the spending cuts, the
current account deficit would narrow to 7.4 percent of the GDP
from 7.9 percent projected earlier.