Thailand's central bank is worried over the rapid rise in the value of its bath currency and will take action - as yet unspecified - together with the Thai finance ministry when needed.
The Bank of Thailand (BOT) said the rise in the baht was "largely attributable to foreign investors' confidence in the strength of the Thai economy" and this had spurred businesses into raising their productivity, the BOT said in a statement following a regular macroeconomic briefing of its Monetary Policy Committee where exchange rate developments were discussed.
However, the rise in the baht has also had a negative impact on Thai exporters, particularly small and medium-sized firms, the BOT said, adding that "despite the exchange rate appreciation, the committee expects the Thai economy to remain resilient."
"The MPC expressed concern over recent volatility and rapid appreciation of the baht, which, at times, have not been justified by economic fundamentals," the BOT said, adding:
"The committee therefore agreed on the need for a timely implementation of appropriate policy mix as warranted by circumstances, in close coordination with the Ministry of Finance and other agencies.
The Thai bath rose by close to 7 percent against the U.S. dollar early this year but then declined early last week following speculation in foreign exchange markets that the BOT would intervene.
The attribution of the baht's rise to investors' confidence in the Thai economy, underlines the difference between the BOT and the Thai finance minister, who has said the central bank's policy rate should be cut as a way to deterring capital inflows, which are putting upward pressure on the baht.
There had been some speculation in markets that the BOT could cut its policy rate from the current 2.75 percent at today's meeting. At the policy committee's previous policy-setting meeting on April 3, the BOT held its rate steady, but warned of the risks to financial stability from volatile exchange rates and capital flows. The next meeting of the monetary policy committee is on May 29.
Fears over a continued rise in the baht have been fueled by the Bank of Japan's new and aggressive monetary easing as some of these fresh funds seek higher yield in other countries, such as Thailand or South Korea, which has also expressed concern over the impact of capital inflows.
Early last week, an assistant BOT governor said the central bank was unlikely to impose "draconian" measures to rein it in the baht and any measures the bank would take should be proportionate to the problem and not prevent the private sector from adjusting and improving its efficiency.
Earlier this month the Thai Finance Minister Kittiratt Na-Ranong revealed he had thought of replacing the governor of the BOT because he had ignored his requests to cut the policy rate by one percentage point to reduce capital inflows and a rise in the baht's exchange rate.