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.