Rising baht hurts exports: How to keep it down?

As baht rose to 29.70 to US dollar at start of year, what action Bank of Thailand should take subject of fierce debate.

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Economics
CURRENCY

Economists, central bank disagree on baht measures

31 Jan 2013
Parista Yuthamanop & Chatrudee Theparat

The Bank of Thailand and some economists have conflicting ideas on the baht's direction and the means with which to rein in its appreciation.

Virabongsa Ramangkura, chairman of both the central bank and the government's water system investment committee, yesterday called on the Monetary Policy Committee (MPC) to cut the policy interest rate from the present 2.75%, saying the differential between local and US interest rates is too much.

Contrary to the central bank's views, he maintained the differential is a key factor in attracting foreign capital inflows.

The Bank of Thailand believes the interest rate gap plays only a small role in drawing inflows and maintains that keeping the interest rate too low for too long would fuel an unsustainable increase in asset prices, creating a bubble.

The rapid appreciation of the baht to 29.70 to the US dollar in the first two weeks of this year caused exporters to be wary of the currency's trend.

They asked the central bank to keep the baht within a range of currencies of regional competitors and some labour-intensive countries.

Mr Virabongsa said the baht appreciation will hurt local businesses.

In his view, the need to lower interest rates to stem capital inflows has increased in importance as the inflows push the stock market bubble.

Independent economist Sethaput Suthiwart-narueput said the central bank would find it cheaper to curb the baht appreciation by lowering the policy interest [rate] than injecting baht and later absorbing it through bond issues as per its usual practice.

"An interest rate reduction by a quarter-percentage point would not do much harm, but such a move would signal the market that we are willing to allow a one-way bet on the baht," said Mr Sethaput.

Somprawin Manprasert, the deputy dean of Chulalongkorn University's economics faculty, echoed the central bank's stance, saying empirical evidence showed the interest rate level has only a small effect on investors' decisions.

"Any impact from an interest rate reduction on foreign exchange will not be very much. Keeping interest rates at a low level for too long in a good economy may spur speculation in financial assets and property - the same scenario we saw in the run-up to the US financial crisis," he said

Assoc Prof Somprawin said the baht may not appreciate much more, as sentiment in the financial markets has begun to swing back to a stronger dollar this year.

But he disagrees with the view that there is an asset bubble in the local stock market.

"The market index has soared despite little improvement in companies' profits because investors are taking a forward-looking approach to the economic outlook when deciding," he said.

The MPC cut interest rates by a quarter percentage point twice last year.

(Source: Bangkok Post, Economics, CURRENCY, Economists, central bank disagree on baht measures, 31 Jan 2013, Parista Yuthamanop & Chatrudee Theparat, link


Baht Appreciation Vocabulary

 
currency - money; the system of money that a country uses เงินตรา (See Wikipedia)
currency appreciation

central bank - main government bank in a country that controls the supply of money and loans (credit) in the country and provides financial services to the government and other banks ธนาคารแห่งชาติ (See Wikipedia)
the central bank's views

monetary policy - the way in which a government or central bank controls the supply of money and credit in an economy (See Wikipedia)
debate about monetary policy

appreciation - increase in value การมีค่าเพิ่มขึ้น
currency appreciation - when a country's currency becomes more valuable compared to the currencies of other countries (which makes goods exported from the country more expensive)

baht appreciation - the increase in value of baht (making baht more expensive than other currencies & Thai exports more expensive)
Mr Virabongsa said the baht appreciation will hurt local businesses.

asset bubble - when assets are bought and sold in large amounts far above their long-term true value, as they are bought and sold the value jumps to even higher unreasonable levels, also called speculative bubble, market bubble, price bubble, financial bubble, speculative mania,economic bubble (See Wikipedia)
asset bubble in the local stock market

creating a bubble

stock market bubble

measures - actions done to solve a problem มาตราการ
baht measures - actions taken by the central bank and government to keep the baht under control and not appreciating much
economists, central bank disagree on baht measures

conflicting - when people disagree (having seriously difference that cannot all be right)
conflicting ideas - ideas that do not go together (both ideas cannot be right at the same time according to logic)

direction - where something or someone is going (in the future)
the baht's direction - where the baht is going (increasing or decreasing in value)

rein in -
control and reduce big movement 
rein in its appreciation

means - methods; ways วิธี, วิธีการ
the means with which to rein in its appreciation

The Bank of Thailand and some economists have conflicting ideas on the baht's direction and the means with which to rein in its appreciation

investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
the government's water system investment committee

interest - payments made for the use of another's money for a period of time
rate - อัตรา
interest rate

policy - a plan of action to guide decisions and achieve outcomes นโยบาย (See Wikipedia)
policy interest rate - the interest rate set by the central bank (to achieve monetary policy goals)
cut the policy interest rate

local - in this country (Thailand)
local interest rates
US interest rates

differential - the difference between (X - Y)
differential between local and US interest rates

Virabongsa Ramangkura, chairman of both the central bank and the government's water system investment committee, yesterday called on the Monetary Policy Committee (MPC) to cut the policy interest rate from the present 2.75%, saying the differential between local and US interest rates is too much.

capital - money invested in a business
foreign capital - foreign money invested in a business
foreign capital inflows -  money invested in businesses in the country that comes from investors outside the country
attracting foreign capital inflows - doing things to make foreign investors to invest in the country

key - important คนสำคัญ
factor - a fact or situation which influences the result of something ปัจจัย

key factor  
a key factor in attracting foreign capital inflows.

contrary to - not agreeing with ...., contradicting ....
maintained that .... - believed that ...
contrary to the central bank's views, he maintained the differential is a key factor in attracting foreign capital inflows.

gap - a space or opening; the distance or difference between two things
interest rate gap - difference between two interest rates, interest rate differential

role - the purpose, function or influence of someone or something in a particular situation บทบาท
play a role
play a small role
play only a small role

asset - something owned by a person, company etc., particularly money and property ทรัพย์สิน
asset prices

sustainablecan be continued for a long time in the future อย่างยั่งยืน
unsustainable - cannot be continued for a long time in the future อย่าง ไม่ได้  ยั่งยืน
unsustainable increase in asset prices

fuel
- to make something increase or become worse ทำใ้ห้รุนแรงขึ้น
fuel an unsustainable increase in asset prices

The Bank of Thailand believes the interest rate gap plays only a small role in drawing inflows and maintains that keeping the interest rate too low for too long would fuel an unsustainable increase in asset prices, creating a bubble.

rapid - happening quickly อย่างรวดเร็ว
rapid appreciation of the baht

trend - a gradual change or development that produces a particular result ทิศทาง แนวโน้ม
the currency's trend

wary - careful or nervous about someone or something because you think they might cause a problem ระมัดระวัง
exporters are wary of the currency's trend.

The rapid appreciation of the baht to 29.70 to the US dollar in the first two weeks of this year caused exporters to be wary of the currency's trend.

regional - in one region (Asean region: Thailand, Singapore, Malaysia, Indonesia, Vietnam, .... )
regional competitors - in the same region and competing against this country (Asean region: Thailand, Singapore, Malaysia, Indonesia, Vietnam, .... )
currencies of regional competitors

range - a number of different things that are of the same general type ขอบข่าย, ประเภท
keep the baht within a range of currencies of regional competitors

intensive - 1. using a lot of something; 2. involving a lot of effort, energy, or attention
labour-intensive - production of goods in factories  that uses a lot of worker time (and less machine time) 
labour-intensive countries

They asked the central bank to keep the baht within a range of currencies of regional competitors and some labour-intensive countries.

stem - to stop something from increasing or spreading หยุดยั้ง,ยับยั้ง,สกัด
stem capital inflows -
stop or reduce investment money flowing into the country
In his view, the need to lower interest rates to stem capital inflows has increased in importance as the inflows push the stock market bubble.

independent - free from outside influence
independent economist

would find it cheaper to

curb - stop or reduce something a lot  ลดหรือยุติ to control or limit something that is harmful ระงับ, ควบคุม
curb baht appreciation

practice - a way of doing something การปฏิบัติ; something that people do regularly

lowering the policy interest [rate]

injecting baht and later absorbing it through bond issues as per its usual practice.

Independent economist Sethaput Suthiwart-narueput said the central bank would find it cheaper to curb the baht appreciation by lowering the policy interest [rate] than injecting baht and later absorbing it through bond issues as per its usual practice.

harm - damage ความเสียหาย
would not do much harm

move -
action
such a move would signal the market

a one-way bet on the baht

signal the market - tell the market something
signal the market that we are willing to allow a one-way bet on the baht

"An interest rate reduction by a quarter-percentage point would not do much harm, but such a move would signal the market that we are willing to allow a one-way bet on the baht," said Mr Sethaput.

deputy - a person who is given the power to do something instead of another person, or the person whose rank is immediately below that of the leader of an organisation รอง, ตัวแทน,ผู้รักษาการแทน
dean - a senior official at a college or university, often the head of a faculty or department คณบดี (ทางการศึกษา)
deputy dean

faculty - a group of departments in a college which specialize in a particular subject or group of subjects คณะ
economics faculty
the deputy dean of Chulalongkorn University's economics faculty

stance - your attitude, views or opinion about an issue, your position on the issue ความเห็น จุดยืน
the central bank's stance
echoed the central bank's stance

empirical - based on things happening in the real work (not just theory); based on scientific experiments or observation ซึ่งได้จากประสบการณ์หรือการทดลองมากกว่าทฤษฎี
evidence - information that shows and proves something to be true หลักฐาน

empirical
evidence - evidence based on things observed or measured (not just theory or ideas)
empirical evidence showed...

Somprawin Manprasert, the deputy dean of Chulalongkorn University's economics faculty, echoed the central bank's stance, saying empirical evidence showed the interest rate level has only a small effect on investors' decisions.

impact -  the effect some event has, the good or harm that an event does ผลกระทบ
spur - to cause something to happen ก่อให้เกิด

speculation
- buying an asset hoping that its price will go up and you will make money, it could go down with a loss of money, assuming the risk of loss in return for the uncertain possibility of a reward การเก็งกำไร (See Wikipedia)

assets - a thing of value with an owner, especially property and money สินทรัพย์
scenario - the way a situation could develop in the future

crisis - an urgent, difficult or dangerous situation วิกฤตการณ์ วิกฤต
"Any impact from an interest rate reduction on foreign exchange will not be very much. Keeping interest rates at a low level for too long in a good economy may spur speculation in financial assets and property - the same scenario we saw in the run-up to the US financial crisis," he said

sentiment - feelings; an attitude or belief that people have based on their thoughts and feelings อารมณ์ทางความคิด กระแส, แนวความคิด, ความคิดเห็น
sentiment in the financial markets - how investors and financial experts feel about the economy, whether it will get better or worse in the near future

Assoc Prof Somprawin said the baht may not appreciate much more, as sentiment in the financial markets has begun to swing back to a stronger dollar this year.

improvement - when something gets better or when you make it better การปรับปรุง, การทำให้ดีขึ้น
little improvement in companies' profits

approach - a way of doing or dealing with something การจัดการกับปัญหา วิธีการทำให้ถึงจุดหมาย
forward-looking approach - a way of doing things that looks into the future (not just trying to make a lot of money in the short-run)
taking a forward-looking approach

outlook - what people think will happen in the future; how good or bad things it seems things will be in the future ภาพรวม อนาคต อนาคตที่คาดไว้
the economic outlook

"The market index has soared despite little improvement in companies' profits because investors are taking a forward-looking approach to the economic outlook when deciding," he said.

MPC - Monetary Policy Committee, the group of decisionmakers and experts at the central bank who make monetary policy decisions
the MPC cut interest rates by a quarter percentage point twice last year.

About the author

columnist
Writer: Jon Fernquest
Position: Online Writer