Baht's rise may bite into this year's economic growth

The baht's appreciation may cut this year's economic growth by 0.7 percentage point, Fiscal Policy Office director Naris Chaiyasoot said yesterday.
With the baht having risen by about 10 per cent against the US dollar so far this year, it could affect growth by close to 1 percentage point, he said on the sidelines of a conference hosted by the office.

The FPO had previously projected growth in gross domestic product this year would be about 7.5 per cent, but he said the stronger baht was likely to slash this to 6.8 per cent, because of its rapid strengthening in the third quarter. However, he added that "6-per-cent GDP growth is still high".

Moreover, it is a conservative calculation based on other currencies not rising against the greenback, whereas in fact regional currencies are also appreciating, which should cancel out some of the effect, Naris said.

He said he did not think a further policy interest-rate cut by the Bank of Thailand would weaken the baht, but it could delay its further rise temporarily.

"The US, Japan and the European Union have pumped money into the market, so it cannot be avoided that the baht will rise, as large capital flows move to Asia," he said.

The Monetary Policy Committee will meet tomorrow to consider the central bank's policy rate, but the market predicts that it will be left unchanged at 1.75 per cent.

Meanwhile, Naris said, Finance Minister Korn Chatikavanij was considering either setting up an agency or assigning an existing agency for the purpose of helping Thai investors invest abroad. He said the Board of Investment was currently able to undertake the task partially.

The FPO is also studying the pros and cons of a tax on capital inflows, he said, although the government could not reveal at this stage whether it would impose such a measure to stem the flow.

Some countries have in the past imposed a so-called "Tobin tax" on capital.

Somchai Sujjapongse, director-general of the State Enterprise Policy Office, said he would this week meet with executives of key state enterprises to ask them to accelerate investment.

"PTT, Thai Airways International and the Electricity Generating Authority of Thailand have large investment plans that would bring in import content," he said yesterday.

The Cabinet recently approved Korn's proposal to accelerate the import of goods worth about Bt50 billion by state enterprises as part of the government efforts to stem the baht's rise.

Meanwhile, Korn yesterday said the Finance, Commerce and Agriculture ministries had been assigned by Prime Minister Abhisit Vejjajiva to monitor goods prices carefully, to prevent importers charging consumers high prices at a time when their companies were already taking advantage of the stronger baht.

The Budget Bureau is also being asked to see whether state agencies can save on their investment budgets, as they will use fewer baht to buy imported machinery, Korn said.

The minister said the central bank still needed to tackle the threat of inflationary pressure, as part of its policy for economic stability.

Economists and the business community have recently called for the bank to cut its key interest rate to discourage capital inflows.

The central bank has raised the policy rate twice in recent months as it tries to pre-empt the threat of inflation that is expected to arise next year.