Thailand relaxed rules on foreign currency holdings on Tuesday in its latest bid to rein in the baht, but analysts said the move would do little to pull the currency back from 10-year highs against the dollar. In order to boost domestic demand for foreign currency, the measures increase the length of time that Thais can hold it, officials said.
But analysts said they were unlikely to slow the baht's rise in the face of broad US dollar weakness and foreign investment in Thai stocks. "The dollar trend is bearish and stocks keep surging, so inflows into Thai stocks will remain strong. They can't drive the baht weaker," said Catherine Tan, head of Asia Emerging Markets at Forecast in Singapore.
"It's better if they remove capital controls and let the market find its own level," she said, referring to controls imposed last December that have failed to curb the baht's rise, leaving exporters worried about earnings prospects.
The baht was little changed after the announcement, but Thai stocks surged 2.5 percent to their highest level in nearly 11 years as foreigners, who have already made net purchases of about $3.9 billion in shares this year, continued to buy.
The main index on the Stock Exchange of Thailand (SET) closed up 2.12 percent at 880.95 points, and analysts say it could power to on 1,000 or more.
At 1013 GMT, the baht, which has developed a two-tier market since December's capital controls, was trading at 33.60 per dollar onshore, compared with 33.58 earlier. It was at 29.80 offshore.
The onshore currency rose to 33.12 per dollar earlier this month, its highest since the 1997/8 Asian financial crisis. The central bank said Thais can now keep foreign currency offshore for 360 days, triple the previous limit, and can hold foreign currency onshore indefinitely, up from 15 days.
Thai-listed companies will be allowed to spend up to $100 million a year on foreign direct investments, double the previous limit. Bank of Thailand Governor Tarisa Watanagase said Thai institutional investors were ready to invest at least 100 billion baht ($3 billion) abroad, but gave no further details.
"These measures give them more flexibility to invest," she said, adding it would also help reduce exporters' costs.
"We may have additional measures if the situation changes," Tarisa said, without elaborating. Finance Minister Chalongphob Sussangkarn said "these measures are not aimed at making the baht stronger or weaker, but to encourage people to hold more foreign currencies".
But convincing jittery exporters there is no urgency to sell their dollars in the current climate will be a tough job, analysts said. "If the firms continue to see the baht going up 5 to 10 percent a year, it makes perfect sense for them to sell their dollars. So, it really depends on how they can manage market expectations," said Han-Sia Yeo, a currency strategist at Bank of America in Singapore.
"The central bank will have to intervene in the FX market". Capital controls and a series of interest rate cuts this year have failed to halt the baht's rise, which totals 7.4 percent onshore this year after a nearly 14 percent rise in 2006, the most in Asia.
The central bank trimmed interest rates by a quarter percentage point to 3.25 percent last Wednesday, but analysts dismissed it as too little too late. The central bank has intervened in the currency market, but the baht has surged as foreign investors have flocked to Thai shares, seeing them as relatively cheap.