Move is to reduce upward pressure on strong baht.

(BANGKOK) The Bank of Thailand relaxed capital controls further yesterday, saying it will allow greater foreign currency holdings and encourage capital outflows, its latest bid to reduce the upward pressure on a strong baht.

One of the relaxations was scrapping the US$100 million limit on overseas investments by Thai listed companies to provide more flexibility, assistant governor Suchada Kirakul told reporters. The limit parent companies can invest in overseas subsidiaries or lend to related firms overseas was doubled to US$100 million from US$50 million, Ms Suchada said.

However, the capital controls imposed a year ago requiring 30 per cent of money coming into the country to be held at the central bank for one year, interest free, were still needed, she said.

‘It’s not the right time yet to lift the capital controls right away,’ Ms Suchada said. ‘Domestic demand, albeit recovering, is still fragile,’ she pointed out.

Analysts said the central bank’s move was welcome.

‘The relaxations will make money flows easier and will be positive for the market as they will help balance inflows and outflows,’ said Songpol Chevapanyaroj, head of Kasikornbank’s capital market business.

The baht, which evolved into a two-tier market after the capital controls were imposed, was little changed after the announcement. It was at 33.63 to the US dollar onshore and at 30.50 offshore at 1150 GMT.

Other relaxations included the exemption from the controls of foreign investments in existing property funds to support fund raising for domestic investment through capital markets, Ms Suchada said.

Foreign currency loans would be exempted from the controls if fully hedged in the form of swaps contracts covering entire loan amounts and maturities. Such loans to Thai firms for up to US$1 million and a maturity of at least one year would also be exempted.

Companies and Thai individuals would also be allowed to hold unlimited foreign currency deposits provided the proceeds came from abroad, Ms Suchada announced.

The limit on property purchase abroad would be raised to US$5 million per year from US$1 million. — Reuters

Source: Business Times