Thailand's central bank is seeking approval for private businesses to hold dollars indefinitely in a bid to curb a surging baht, Governor Tarisa Watanagase said on Thursday.
The extension from a current limit of 15 days was among measures to be discussed at a meeting of top economic officials later in the day to rein in the baht and help exporters.
The central bank was also trying to unify offshore and onshore baht rates -- which emerged after capital controls were imposed last December -- by inducing businesses to shift offshore currency swap deals onshore, she said.
"We still don't know if it will be effective. We have to wait a month to see the response," Tarisa told reporters before meeting top economic ministers. The military-backed government and central bank are under pressure to tackle the baht, which hit a 10-year high last week, threatening the competitiveness of exports which account for 65% of Gross Domestic Product (GDP).
The Bank of Thailand cut its key interest rate by a quarter percentage point to 3.25% on Wednesday in a surprise move to stimulate the economy and curb the baht's rise. Analysts said it was too little and too late.
"More likely, exporters and advocates of intervention will want even more," Phatra Securities economist Thanomsri Fongarunrung said in a report forecasting further rate cuts of up to 50 basis points if the baht continued to rise.
"Giving in to exchange rate demands is likely to compromise the clarity of monetary policy's inflation-targeting objective and lead to speculation about the BoT's exchange rate target," she said.
Traders cited concern among foreigners -- who have poured $3.8 billion into Thai shares this year -- that a weaker baht could erode capital gains when converted into dollars.
The central bank has intervened in the market, but the currency has risen another 8% against the dollar so far this year on top of a 14% rise in 2006.
The government appointed by the military after a bloodless coup last September is to decide on further measures to restrain the baht next Tuesday.
"The Finance Ministry will announce measures as quickly as possible, based on proposals from the central bank which will focus on encouraging outflows of domestic funds to help ease pressure on the baht," a ministry official told Reuters.
He said the measures under consideration included:
- Allowing exporters to hold dollars indefinitely;
- Allowing Thais to open dollar deposit accounts with domestic banks without limits on duration or amount;
- Encouraging Thais and Thai-owned businesses to invest abroad, either in the form of foreign direct investment or investment in offshore debt and other financial instruments; and
- Scrapping an existing measure that limits exporters to holding foreign currencies in foreign bank accounts to 120 days.