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Thai baht soars to 11-month high as US probes currency practices

Central bank defends policy as exports and tourism key to recovery from COVID

The Thai baht has enjoyed a strong rally recently, prompting the government to try to curb its rise.   © Reuters

BANGKOK -- The Thai baht surged against the dollar on Thursday, after the U.S. said the kingdom's currency practices needed closer scrutiny, prompting investors to take the view that government efforts to rein in a sustained appreciation of the baht could now be hampered.

The currency rose to 29.81 baht per dollar on Thursday, approaching the seven-year-high of 29.75 recorded on the last day of 2019. Some investors are buying the baht on hopes that the government would now be discouraged from taking measures to cool the monthslong baht rally, a sales trader from a commercial bank told Nikkei Asia.

In its semiannual report released overnight, the U.S. Treasury Department put Thailand, along with Taiwan and India, on its list of major trading partners whose currency practices warrant scrutiny to ensure fair and free trade.

Being on that list is one step away from being named as a currency manipulator by the U.S. department. Vietnam and Switzerland, which also appeared on that list for the first time, could face penalties such as being excluded from U.S. government contracts if they failed to convince authorities to remove them within a year.

Among the currencies of newly listed countries, the Thai baht's jump appeared to be the steepest. The currency had surged since November, helped by strong economic fundamentals. The emergence of COVID-19 vaccines had also given Thailand hope for an earlier-than-expected recovery in foreign tourist arrivals. Uncertainties over the future of the U.S. presidency and the Washington-Beijing trade rift had also receded.

The strong baht, however, hurts exports and tourism at a time when Thailand is trying to revive its economy. Although Prime Minister Prayuth Chan-ocha and his administration had hoped to transform the Thai economy by boosting domestic demand, encouraging innovation, and moving the country up the value-added ladder, the kingdom is still heavily dependent on external demand.

To rein in that rise, Thai government and the central bank had liberalized foreign currency deposits, and increased the investment limit for Thai retail investors to buy into foreign securities to $5 million from $200,000.

More measures are in the pipeline to manage the rise in value of the baht in both the short term and the long term, Bank of Thailand Senior Director of the economic and policy department Chayawadee Chai-Anant told reporters late November.

On Thursday, the Thai central bank clarified its position: "The Bank of Thailand has been in close dialogue with the U.S. administration to foster an understanding of Thailand's macroeconomic and financial conditions," said Chantavarn Sucharitakul, assistant governor of communications and corporate relations, at the Thai central bank.

She emphasized that the bank respects currency flexibility and has conducted intervention only to ride out volatility. "The Bank of Thailand has ensured that Thailand has no intention to use the exchange rate as a tool to gain an unfair trade advantage or competitiveness over trading partners," Chantavarn said.

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