Magazine article Global Finance

FX Update

Magazine article Global Finance

FX Update

Article excerpt

Thailand: All change

One year and three months after the Bank of Thailand announced punitive capital controls designed to stem inflows of hot money, the central bank revealed that these would finally be lifted as of March 3rd of this year. Speaking at a press conference on the Friday beforehand BOT Governor Watanagase also indicated that Thai companies would be allowed to invest more overseas. She noted that other measures would be implemented to support removal of the controls and that a managed float of the THB remained appropriate.

The move came at the end of a review ordered at the start of February by finance minister Surapong Suebwonglee and came ahead of a roadshow aimed at rebuilding investor confidence in Thailand. This already appeared to be happening, even before the formal announcement. The Bank of New York Mellon's own custodial flow data showed a clear surge of foreign investment into Thai equities from the start of February onwards. Indeed, such had been the pace of inflows that by the end of the month it was starting to look distinctly like the pattern that emerged in the aftermath of the military coup in September of 2006. It is interesting, however, to speculate whether some other forces may have been at work here. When the controls were initially imposed, they were designed, in part, to curb speculation in the THB (given that USD/THB had fallen over 13% that year).

Even after the controls were imposed the THB continued to appreciate against the USD. By July of last year USD/THB had fallen a further 15%. …

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