Thailand has announced that foreigners bringing money from overseas to buy local property will not be subjected to capital controls unveiled last week to curb upward pressure on the Thai baht.
The clarification – posted on the Bank of Thailand’s website in Thai late on Thursday – came as a relief to developers and property investors who had feared that Thailand’s robust market in holiday homes would be hit by a reserve requirement on money brought in for the purchases.
In an on-going effort to calm markets still unsettled by this week’s imposition of, in effect, a withholding tax on short-term capital inflows, Tarisa Watanagase, the central bank governor, insisted that the bank was only attempting to deter speculators, rather than close the door on long-term foreign investment.
She ruled out any further measures to curb appreciation of the baht, but said existing measures would remain.
“We have touched the brake, we have seen the results, and we have met our objective,” she said in a televised interview yesterday.
Thailand shocked international markets on Monday when it unveiled a new requirement that 30 per cent of all foreign capital inflows over $20,000 – except those related to trade in goods and services – be deposited in a non-interest bearing account with the central bank for a year.
The measure, which analysts warned would deter new foreign purchase of Thai equities, sent the stock market plummeting by 15 per cent the following day, when international investors dumped about Bt25bn ($687m, £350m) worth of Thai stocks.
The impact on the equity market prompted a partial retreat, as officials declared on Tuesday evening that capital inflows for stock purchases would not be subject to the reserve requirements.
While the Thai stock market has since recovered some of its lost ground, foreigners have remained net sellers, shedding an additional Bt5bn worth of Thai shares since the policy U-turn. But Ms Tarisa said most of the money from foreign stock selling remained in Thailand, and foreign investors would likely start buying after the holiday period.
To prevent a significant outflow of foreign capital triggered by the foreign equity sell-off, the central bank lifted a previous rule that had limited non-residents to holding Bt300m in Thai bank accounts, giving investors a bit of breathing room to decide what to do with the money.
However, the limit will be re-imposed on January 8, setting a deadline for investors to decide whether to purchase additional Thai assets or withdraw their funds from the country.
Ms Tarisa, who was appointed central bank governor following a September 19 military coup, meanwhile ruled out any immediate lowering of interest rates, which analysts say would have been the most appropriate method to ease pressure on the baht and could have helped restore investor confidence.
“The interest rate cut would boost economic growth and bring in more inflows,” she said.