By Kitiphong Thaichareon and Orathai Sriring
BANGKOK, Dec 18 (Reuters) – The Thai central bank is calling on the finance ministry to control gold trading after a surge in transactions helped drive up the value of the baht, its governor said on Thursday, adding that monetary policy could be further eased if needed after key rates were cut to a three-year low.
The baht has gained 9.1% against the dollar so far this year to become Asia’s second-best performing currency, adding to the problems of Southeast Asia’s second-largest economy, which has been struggling with multiple challenges like U.S. tariffs, high household debt, a border conflict with Cambodia and political uncertainty ahead of elections on February 8.
Gold trading flows have become a significant driver of currency movements, Vital Ratanakorn told a business forum.
“On days when the baht strengthens sharply, gold trading transactions account for about half of the flows pushing the baht up,” he said, adding that large gold dealers now represented trading volumes equivalent to roughly 50% of GDP.
“The central bank is doing everything it can, expanding all measures as far as possible. We have the Foreign Exchange Act, but it doesn’t cover the gold trading business. There needs to be someone to regulate the gold trade,” he said.
NO PLANS TO TAX GOLD TRANSACTIONS
The central bank has said there are no plans to impose a tax on gold trading at the moment. Gold traders have opposed such a move, warning it would hammer the sector.
Vitai also said the central bank would not impose taxes on capital inflows or outflows in another measure to tackle the baht’s rapid appreciation.
“We can’t use overly drastic measures, such as imposing taxes as we did in 2010, which caused the market to crash immediately, or banning inflows and outflows,” he added.
Vitai reiterated that the central bank is taking action on the baht, with the aim of reducing volatility rather than dictating the baht’s value.
“The central bank wants the baht to weaken in line with economic conditions,” Vitai said. “We manage it every day to ease volatility… but we cannot set the currency’s level,” he added.
‘NOT A LOT OF AMMUNITION LEFT’
While pledging readiness to cut interest rates further if necessary, Vitai said Thailand’s monetary wiggle room was limited following five cuts totalling 125 basis points since October 2024.
“We are ready to cut rates further if needed, but there’s not a lot of ammunition left,” he said, adding that very low rates would affect savings and would have little effect on inflation.
Some economists are expecting another reduction at the BOT’s next rate review on February 25.
Despite negative inflation, Vitai said Thailand is not yet facing deflation, adding that structural issues will require targeted measures beyond rate cuts. The central bank will introduce loan guarantee schemes next week to spur credit and investment.
The central bank forecast the economy to grow 2.2% this year and 1.5% next year. Last year’s growth was 2.5%.
Fiscal and monetary policies are moving in step, Vitai said, citing his close coordination with Finance Minister Ekniti Nitithanprapas.
“I’m lucky to have a close relationship with the finance minister. Monetary and fiscal policies are well coordinated. The finance minister has never interfered in matters related to the policy interest rate,” he added.
(Reporting by Orathai Sriring, Kitiphong Thaichareon, Thanadech Staporncharnchai, Chayut Setboonsarng; Editing by John Mair and David Stanway)
