The Bank of Thailand (BOT), on July 12, 2019, issued the measures to enhance short-term capital flow surveillance under the measures to prevent Thai Baht speculation formally announced after the central bank had earlier sent signal and expressed concerns over the rapid gains of Thai Baht which had strengthened beyond the fundamentals of the Thai economy. The two key points of the measures are: 1. Enhance measures to prevent Thai Baht speculation through the Baht-denominated account of non-residents (NR). The BOT has reduced the limit on the outstanding balances of Non-resident Baht Account (NRBA) and Non-resident Baht Account for Securities (NRBS) to THB200 million from THB300 million. The NRBA is the Baht-denominated account for general purposes such as for payment of goods/services, and the NRBS is the Baht-denominated account for investment in securities and other financial instruments. 2. Enhance the reporting requirements for non-residents’ holdings of bonds issued in Thailand where the names of end beneficiaries shall be reported for all non-residents’ holdings of Thai bonds.
KResearch views that the abovementioned measures are intended to enhance the BOT’s surveillance of an anticipated increase of capital inflows into the Thai financial markets in the future. In particular, the Chair of the US Federal Reserve recently hinted at the US fed funds rate cut possibly as early as at the Federal Open Market Committee (FOMC) meeting late July 2019. Moreover, the lower limit of the outstanding balances in the NRBA and the NRBS reflects the BOT’s intention to choose measures aimed at specific targets to curb the short-term capital inflow again. This is because the lower limit on the outstanding balances of the NRBA and the NRBS at the end of the day will decrease the channels for non-resident investors to park their money in the Baht-denominated assets. The measure is in line with the recent BOT announcement to scale down the auction size of the short-term bonds.
At any rate, KResearch posits that it may take a while to determine whether these measures are effective in curbing Thai Baht speculation as the US dollar is weakening due to the anticipation over the US interest rate, which is expected to draw more capital inflow into Thailand. Additionally, if the BOT detects any unusual activity, it may review the situation to determine whether it is necessary to use other measures/tools in the future. It is noted that each measure has different conditions and different impacts on the financial markets. Non-resident Baht Account for Securities (NRBS),