UPDATE 2-Thai c.bank to relax outflows as currency surges

Mon Sep 20, 2010 4:04pm IST

* Measures to facilitate overseas investment by Thais

* Analysts expect minimal impact as EM flows continue

* C.bank says measures aimed at stabilising baht (Adds details, analysts' comments)

By Orathai Sriring and Jason Szep

BANGKOK, Sept 20 (Reuters) - The Bank of Thailand said on Monday it will unveil measures this week to spur capital outflows but analysts doubt they can tame one of Asia's fastest-rising currencies as emerging markets worldwide see huge inflows.

With speculation of further easing in the United States and Japan, and with the European Union delaying its exit from crisis measures, emerging markets are the destination of choice for investors searching for yield.

About $1.13 billion of foreign money has flowed into Thailand's resurgent stock market .SETI since July 23 and about $2.6 billion into Thai government bonds since early July, trends that have helped to lift the baht THB= about 8.4 percent this year and are expected to continue in coming months.

Mindful of a disastrous capital controls in 2006, the central bank is focusing this time on outflows, allowing firms to invest and lend more abroad, and allowing Thais to buy offshore property worth up to $10 million compared with $5 million now.

A limit on foreign currency accounts opened with banks in Thailand is also expected to be raised to $500,000 and exporters will be allowed to keep as much as $50,000 in foreign currencies abroad, up from $20,000 now. [ID:nSGE68G06G]

Central bank Assistant Governor Suchada Kirakul told reporters the measures to be announced later in the week would help to stabilise the baht, Asia's third best performing currency this year after the yen JPY= and the Malaysian ringgit MYR=.

"They will not address the baht's strength directly but will help facilitate offshore investment," Suchada said of the measures, which were outlined as far back as February.

Tough capital controls in December 2006 were aimed at reining in the baht, Asia's fastest-rising currency that year, but triggered the biggest-ever one-day plunge in the stock market and were progressively relaxed and have since been lifted.

ANALYSTS SCEPTICAL

Analysts were sceptical the latest measures would have immediate impact on the currency, which has been supported by a big current account surplus and wave of capital inflows as investors bet on a strong recovery in the economy, projected by Thai authorities to expand as much as 7.5 percent this year.

Many expect more inflows ahead. Foreigners have already bought a net 32.3 billion baht ($1 billion) of bonds in September, 30.4 billion baht ($990 million) in August and 19 billion baht ($619 million) in July, said Chakkrit Parapuntakul, chief of the Finance Ministry's public debt management office.

"A very modest impact I'd say," Sean Callow, senior currency strategist at Westpac Banking Corp in Sydney, said of the measures, forecasting the baht would trade at 30.50 per dollar by year end, appreciating further from its current 30.74.

Barclays economist Rahul Bajoria shared that view, saying the measures, while encouraging more two-way currency flows, were unlikely to have a material impact and appeared aimed at satisfying exporters concerned over the baht's rise.

Economists at Bank of America Merrill Lynch said measures to slow capital inflows may become "part and parcel of the macroeconomic policy toolkit that allows for gradual baht appreciation".

Thai policymakers do not appear overly concerned. Despite the baht's strength, it is still undervalued in trade-weighted terms, with its real effective exchange rate fairly steady at around 94 in July, compared with 96 in June and 95.6 in May.

Finance Minister Korn Chatikavanij, speaking on Monday at a forum organised by broadcaster CNBC, said the baht still remained largely in line with its regional peers despite strong gains against the weakening U.S. dollar.

"The key is really whether the baht is moving according to its underlying fundamentals," he said. "We don't want a currency that has been distorted by excessive speculation."

He noted that the baht remains relatively stable against Southeast Asian currencies. "And against one of our major trading partners, Japan, we've been weakening," he said. "The problem is shared almost equally for all Southeast Asian countries." ($1=30.74 baht) (Additional reporting by Boontiwa Wichakul; Editing by Tomasz Janowski)

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