Sunday, December 23, 2007

Thai Capital Flows

Here is the latest release press from the Bank of Thailand on capital flows:
Mrs. Suchada Kirakul, Assistant Governor, Financial Markets Operations Group, Bank of Thailand, disclosed details about the further relaxation of measures to manage capital flows as follows:

The Bank of Thailand (BOT) has introduced an unremunerated reserve requirement (URR) on short-term capital inflows since 18 December 2006 as a temporary measure to regulate short-term capital inflows, prevent speculation on the Thai baht, and avoid excessive volatility and appreciation of the Thai baht, which are not consistent with Thailand's underlying economic fundamentals. This measure has resulted in improved exchange rate stability, with the baht movements more in line with other regional currencies. Meanwhile, the real and export sectors have been able to better adapt to the exchange rate changes, through diversification of export markets and hedging of foreign exchange risk.

The BOT has been mindful of adverse effects that this measure had on the financial transactions of domestic private sector and foreign investors. This has led to gradual relaxation of the measure in order to increase flexibility in conducting business, such as (1) providing a fully hedge option as an alternative to the reserve requirement, particularly for loans and for investment in fixed income securities and mutual fund units, and (2) waiving the reserve requirement on investments in equity-like securities, namely, warrants and exchange traded fund (ETF) units. In addition, regulations on foreign currency deposit and transfer have been relaxed to increase the flexibility for Thai businesses in managing their foreign currencies and investment abroad, which should lead to more balanced capital flows in the longer term.

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