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Thai capital controls causing baht to trade at stronger rate outside country

Thai capital controls causing baht to trade at stronger rate outside country

Thailand's capital controls are creating a disparity in the baht's exchange rate, with the currency trading at a much stronger level outside the country than inside.
The baht was trading at 35.855 to the U.S. dollar inside Thailand late Friday, while outside the country _ or "offshore" in currency lingo _ the baht was trading in the 33.60-33.75 range, about 6 percent stronger.
The disparity has developed due to the lack of supply of baht trading offshore because of controls on foreign capital inflows imposed by the Bank of Thailand in December.
Aiming to stem the baht's surge, the central bank last month imposed a 30 percent withholding deposit on selected capital inflows and penalties on investments held for less than a year.
The withholding means that only investors certain they will be eligible for a timely exemption want to buy baht from an onshore institution. Other investors are left to bid up the limited supply offshore.
The baht's surge offshore prompted exporters to sell the dollar in local markets, but traders believed that the central bank was restraining by buying dollars to counter that.
Bank of Thailand Governor Tarisa Watanagase told exporters to be calm, saying it was wrong to think that the strengthening of the baht offshore would affect the exchange rate onshore.
The dual-pricing is evidence that the central bank's capital controls work, she said.
Trading volume offshore has been very light, much lighter than the onshore volume, traders said.
Traders also suspected the central bank of intervening in offshore markets in late trade to take the bid for the dollar off a low of around 33.00 baht to ease the psychological pressure in the onshore market.
Traders said further high volatility is expected offshore over the weekend, due to the lack of baht supply and the lack of any end in sight to the situation, despite the central bank's assurances that the controls are temporary and will be very gradually removed.


Updated : 2021-07-30 06:43 GMT+08:00