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Fri, Dec 22, 2006 - Page 10 News List

Bank governor defends baht measures

ALL'S WELL Tarisa Watanagase said that this week's slump in the Thai stock market was a side effect of central bank measures, but that the problem had been rectified

AGENCIES , BANGKOK AND SINGAPORE

A currency dealer writes the exchange rate next to baht notes showing Thai King Bhumibol at an exchange shop in Bangkok yesterday. Thai Prime Minister Surayud Chulanont yesterday defended the government's U-turn on draconian currency measures that sparked a 15-percent stock plunge.

PHOTO: AFP

Bank of Thailand Governor Tarisa Watanagase defended measures to control the appreciation of the baht that wiped US$23 billion from the value of Thai stocks.

"As soon as the volatility reduces, we will lift the requirement," Tarisa said in an interview yesterday. "This is temporary."

The baht fell by the biggest amount in more than seven years.

Tarisa announced currency controls on Monday to stem a 16 percent rise in the baht. The measures prompted investors to dump Thai stocks and forced Finance Minister Pridiyathorn Devakula to intervene by exempting equities from the rules, spurring a rebound in the benchmark SET Index.

The finance ministry was informed the central bank would issue "a measure on the baht, but I didn't look into the details," Pridiyathorn said on Tuesday. The stock market slump was "a side effect of the central bank's measure, but we have fixed it already."

Tarisa said yesterday the finance minister helped plan the steps.

"I simply don't believe a central bank in the region would make a decision like this independently," said Julian Jessop, an economist at Capital Economics Ltd in London. "This is about as incompetent as it gets."

The central bank underestimated the impact of restrictions on equities because "they did it without talking to us," Thirachai Phuvanatnaranubala, head of the Securities and Exchange Commission, said on Wednesday.

Tarisa said the central bank has no target for the baht's exchange rate with the US dollar.

But Pridiyathorn said yesterday that Thailand does not want the baht to strengthen beyond 35 to the US dollar because of the psychological impact on the country's exporters.

"The psychological barrier is 35," Pridiyathorn said. "We don't want it to break through that. If you break 35, you see 34, you can also see 33 and 32."

Pridiyathorn, the central bank chief until appointed finance minister after a Sept. 19 military coup, said he was happy with the baht's retreat to around 36.5 per US dollar yesterday from Monday's nine-and-a half-year high of 35.06.

He did not foresee the need for further action.

"You can see clearly this is quite enough," he said, adding that Thailand's target was to "be on the same level of appreciation" as other currencies in the region.

"Foreign investors will now be far more wary of investing in Thai financial markets," Standard & Poor's credit analyst Kim Eng Tan said yesterday. "This will lead to higher funding costs in the kingdom, with negative implications for the prices of debt and equity assets."

Thai share prices fell 2.23 percent yesterday as investors remained wary of the government's economic policy dealers said. They said investors locked in profits following an 11-percent rebound and trading was also sluggish ahead of the Christmas holidays. The SET composite index fell 15.45 points to close at 676.10, while the bluechip SET 50 index declined 12.99 points to 470.16. Losers led gainers 297 to 88, with 64 stocks unchanged on turnover of 5.4 billion shares worth 20.1 billion baht (US$552 million).

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