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End of Capital Control Experiment

Evil Penevil

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This is an update from a financial advisor who earns big bucks keeping "high wealth individuals" informed of what's happening so they know where to place their investments. Take it with however many grains of salt you choose


"News wires are reporting that as of tomorrow Thailand will scrap its remaining capital controls. Given some of the backtracking since the controls were first announced, the one notable asset class that may be impacted is foreign purchases of Thai fixed income products on an unhedged basis.


Thai officials have long maintained that the capital controls would be temporary in any event and would end when the one way speculation on the currency ended. This is precisely what the Bank of Thailand Governor declared today. The ontrols have been successful. Additional details will be forthcoming.


One interesting note is that today not only did the central bank its key 1-day policy rate by 25 bp to 4.5%, but also the Finance Minister and deputy Prime Minister resigned. And just yesterday, the Thai cabinet approved three amendments to the financial laws that strengthen the independence of regulators and central bank. The governor previously reported to the Finance Minister and now will be appointed by the Senate and limited to two 5-year terms. Investor protection was also enhanced and local rules have been brought more into line with int'l standards. Lastly, the cabinet approved greater flexibility in the management and maintenance of Thailand's reserves.


As we argued previously, it is not clear that the capital controls succeed. The baht is stronger against the dollar than it was when the capital controls were first announced. The abolishment of the capital controls seem largely a facing saving gesture. Claim victory and get on with it. Indeed the near-term outlook for the baht appears favorable, with scope for the dollar to test the recent low near THB33.00. And Thai officials are likely to intervene, which they are suspected of having done earlier this month."



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