Net foreign capital inflow has exceeded US$10 billion (Bt300 billion) in the first five months of this year, which could add more fuel to inflation, the Bank of Thailand said yesterday.
“There is very high liquidity in the system due to the current-account surplus and bond purchases by overseas investors,” Governor Prasarn Trairatvorakul said.
In the first five months of this year, overseas investors were net buyers of Bt454 billion in bonds, according to the Thai Bond Market Association.
The baht remains quite stable and there is no pressure on capital inflows after the central bank hiked the policy rate by a quarter of a percentage point to 3.00 per cent last week.
Foreign capital has lately moved more rapidly both in and out, however, this was to be expected, the chief central banker said.
The baht was quoted at 30.28 against the US dollar yesterday. For almost a month, the currency has been range bound due to uncertainties over the US economic recovery and the eurozone’s sovereign debt crisis.
Nothing irregular was found with influx of capital considering foreign investors’ concern over problems of the world economy. Prospects for the US recovery remain gloomy while Europe continues to confront sovereign debt crises.
“This time, foreign players are risk averse when it comes to making investments as the US economic figures came in unfavourably and Europe has not found proper solutions for its sovereign debt problem yet. Investors do not take risks to buy assets, so those who bought assets of developing countries have sold some of them in some periods,” Prasarn said.
Inflation remains a threat for the Thai economy and the central bank needs to monitor it constantly. If inflation is very high, costs will be driven up and eventually people will have a difficult time, he added.
Last month, headline inflation came in at 4.19 per cent on year while core inflation jumped to 2.48 per cent.
Source: The Nation