Thailand relaxed rules on capital outflows and will increase scrutiny of fund flows into bonds to help cool a currency rally that threatens its economic recovery from the pandemic.
The Bank of Thailand (BOT) moved forward measures that were supposed to begin early next year, most of which will now take effect from end-November. The rules will make it easier for Thai citizens to move money overseas and invest in foreign assets, and to hold foreign currency in Thai banks. It will also require the registration of local and overseas bond investors.
“Following the US elections and positive news on Covid-19 vaccine development, investors have turned towards investing in emerging markets, including Thailand,” the bank said in a statement. The situation has “resulted in strengthening the baht quickly and can impact economic recovery.”
The registration of bond investors “will allow close monitoring of investor’s behaviours and thereby enable the implementation of targeted measures in a timely manner,” it said.
The move follows a central bank assessment earlier this week that the baht’s recent rapid gains could affect the country’s “fragile” economic recovery. The government has called on the central bank to restrain the baht to protect exports.
The baht gained as much as 0.5% to 30.276 to a dollar after the BOT announcement, trimming its losses this week to 0.4%.
“The issue here is that local investors have a very strong home bias. Making it easier to invest overseas may not actually encourage them to do so,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. The central bank also will continue to resort to direct intervention in foreign-exchange markets, “but they need to be careful as they are skirting close to meeting the US Treasury’s three criteria for currency manipulation,” he said.
The baht has been the second-best performer in Asia this month after foreign investors turned net buyers of almost $2.4 billion of bonds and stocks as appetite returns for riskier emerging-market assets amid a weak dollar. The Thai currency had recently rallied 8.8% from this year’s low in April, hitting a 10-month high.