* Allows Thai firms to directly invest more abroad
* Raises limit on foreign investment by mutual funds
* Allows exporters to freely unwind fx hedging
(Adds comment from economists)
By Orathai Sriring
BANGKOK, Feb 1 Thailand's central bank further
relaxed controls on capital outflows on Monday in a widely
telegraphed move aimed at helping companies invest overseas and
reversing the effects of disastrous controls imposed in 2006.
The Bank of Thailand ended restrictions on the amount Thai
firms can invest abroad, raised the foreign investment limit
for Thai mutual funds to $50 billion from $30 billion and
cleared the way for wealthy Thais to spend more in overseas
property markets, Deputy Governor Bandid Nijathaworn told a
The changes could help exporters by holding down the baht,
which has risen 0.4 percent against the dollar this year after
gaining 4.6 percent in 2009 as Asia's third-strongest currency.
Pimonwan Mahujchariyawong, an economist at Kasikorn
Research Center, said the immediate impact on the currency
might be small, but the measures could help ease upward
pressure in the future.
"They are aimed at facilitating investment overseas and at
reducing the impact from fund inflows if the central bank
raises interest rates. They will help slow the baht's rise,"
Bank of Thailand Governor Tarisa Watanagase flagged the
move on Thursday, saying she wanted to moderate fluctuations
that could come in response to steps to gradually reverse
controls on inflows imposed by an army-appointed government in
Bandid said exporters would also be allowed to unwind
foreign exchange hedging transactions freely, ending a previous
$20,000 limit on hedging contracts exporters and importers
By allowing unlimited unwinding of these hedged dollar
positions, Thai traders can choose the best time to unwind
contracts, giving them freedom to speculate on currency moves.
When exporters start buying dollar hedging contracts, they
basically sell dollars for baht in advance. In reverse, when
they unwind these contracts, they buy back the same dollars,
effectively slowing baht gains.
The Thai currency strengthened slightly on the news.
Traders said the easing of the controls was already widely
factored into the market. The baht stood at 33.12-15 per dollar
at 0848 GMT from 33.21 before the announcement.
Penn Nee Chow, an economist with UOB in Singapore, said the
measures could help weaken the baht but not in a big way.
"The announcements are very controlled, with incremental
changes, so there should not be too much change in the baht."
The changes are the latest in a recent series of steps to
relax controls on outflows.
In Dec. 2007, the Bank of Thailand took a step in this
direction by allowing greater foreign currency holdings and
encouraging capital outflows, in part by scrapping the $100
million limit on overseas investments by Thai listed companies.
Last August, the central bank relaxed controls further by
allowing large Thai companies with a minimum 5 billion baht
($151 million) in assets to invest directly in foreign
securities without going through mutual or private funds.
It also imposed at that time a $50 million ceiling on
outstanding investment in foreign securities that could be made
by a Thai corporate entity engaging in non-speculative
Also on Monday, the central bank raised the limit on
offshore property investment by Thais to $10 million per year
from $5 million per year.
Other emerging market governments from Taiwan and Russia to
Brazil have imposed controls in recent months to curb
speculative flows which they fear could create potentially
destructive bubbles in property and stock markets.
For a list of controls announced by Taiwan in recent
months, click on [ID:nTOE60506L]. For controls imposed by other
countries around the world, click on [ID:nLJ437424]].
In December 2006, shortly after Tarisa became governor, the
government spooked markets by imposing draconian capital
controls to rein in the baht, Asia's fastest-rising currency at
the time, to help the export-driven economy.
The curbs required that 30 percent of all currency inflows
without underlying business deals be deposited at the central
bank, interest free, for a year, or face a stiff penalty.
The initial measures triggered a drop of nearly 15 percent
in Thai stocks, the biggest-ever one-day fall, and tarnished
the country's investment reputation.
Equity investments were quickly exempted from the controls
and other measures were lifted in March 2008, to be replaced by
measures to make the baht more accessible to foreigners and
encourage capital outflows. ((For a TIMELINE, click on
(Reporting by Kitiphong Thaichareon; Writing by Orathai
Sriring; Editing by Jason Szep and Alan Raybould)