Bank of Thailand in policy rethink
Source: Bangkok Post
The Bank of Thailand is reviewing foreign-exchange policies with the goal of maintaining the country's trade competitiveness relative to the region as well as the rest of the world.
Regulators also were concerned about the impact currency appreciation would have on the country's labour-intensive industries, said deputy governor Thirachai Phuvanat-naranubala.
The export sector was now polarised, he said, with industrial exports at odds with more labour-intensive sectors in terms of the benefits from foreign-exchange management.
Rapid expansion of capital-intensive products had helped boost the country's trade surplus and contributed to the currency appreciation.
The baht is now trading near 40 to the US dollar, compared with 42 in the first half, driven by the country's steady current account surplus, capital inflows and weakness in the dollar overall.
Exports have been a major driver of economic growth, gaining 18% in the first seven months of the year.
But Mr Thirachai said the benefits of strong exports on the labour market had been less than growth figures would otherwise suggest, given that growth had been focused on industrial products from large companies.
The highest export gains in the first seven months had been recorded by industries such as rubber, chemical products, vehicle parts and accessories, and integrated circuits. Overall, the 10 sectors posting the highest export growth represented 30% of total exports, with export value of 570 billion baht (see chart).
In contrast, labour-intensive products, mostly made by smaller firms, such as garments, jewellery, footwear, toys and artificial flowers accounted for 7.8% of export value at 150 billion baht.
Industrial goods focused mostly on the upstream side, with relatively shorter links to the local economy compared with small businesses, he said.
Large firms were also more resilient to currency fluctuations as prices were benchmarked to the world market and multinationals were able to benefit from their global networks.
Central bank policy has consistently focused on maintaining currency stability as well as supporting export growth. Most economists expect the baht to strengthen steadily against the dollar as the economy continues to expand.
Consumer product firms were particularly vulnerable to baht gains, given their key rivals were regional countries whose currencies were tied to the dollar.
The government could also look to adjust foreign-exchange policies to look not only for stability, but also weight the baht against other Asian currencies, Mr Thirachai said.
"Further weakening of the dollar would only worsen the problems faced by small businesses," he said. "A larger trade surplus, meanwhile, would in turn further support baht appreciation."
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