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Thailand central bank takes aim at capital inflows as baht climbs

[BANGKOK] Thailand's central bank said on Friday it moved against short-term speculative inflows amid a strengthening baht and was ready to use additional measures if speculation persisted, sending the currency and stocks lower.

The measures come days after the Bank of Thailand (BOT) governor said he was not happy with "hot" money fuelling the baht, Asia's best performing currency, and was ready to act if inflows were unusually large.

The BOT "is concerned about the rapid appreciation of the Thai baht relative to its regional peers, as it could lead to unfavourable macroeconomic repercussions", assistant governor Vachira Arromdee said in a statement.

"With the relatively more positive outlook on the Thai baht, investors have increased their positions in Thai baht and Thai securities, in part for short-term speculative purpose," she added.

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The bank reduced the limit on the outstanding balance in non-resident baht accounts (NRBA) and non-resident baht accounts for securities (NRBS) to 200 million baht (S$8.8 million) per non-resident from 300 million baht, effective July 22.

It also tightened reporting requirements for non-resident holdings of debt securities issued in Thailand.

The baht slipped by 20 basis points to 30.91 per dollar after the BOT announcement, and traded at 30.87 at 0510 GMT.

The baht has appreciated by 5.5 per cent against the dollar this year, the top performer in Asia.

The Thai stock market dropped about 0.5 per cent at the midday break, but is up by 11 per cent this year.

Dealers said the measures would have a short-term impact on inflows, which they expected to slow down. Some traders suggested the central bank should cut its policy rate.

The BOT has left its benchmark interest rate unchanged at 1.75 per cent since December's hike. The rate is 50 basis points above the record low.

"What the central bank should do is to cut its policy interest rate," said a dealer at Krung Thai Bank.

BOT governor Veerathai Santiprabhob said on Monday there was no need for a quick adjustment of monetary policy.

Friday's measures came after the BOT this month cut its short-term bond supplies to slow fund inflows, which had pushed up the baht to its highest in six years this month.