Exchange rate and effective exchange rates (NEER & REER)
Since July 1997, Thailand has adopted the managed-float exchange rate regime, which is also consistent with the inflation targeting regime that has been in place since 2000. Under the inflation targeting framework and the managed-float, the value of the baht is allowed to be determined by market forces, reflecting demand and supply for the baht in the foreign exchange market.
Under the managed float, the Bank of Thailand
(1) does not target a fixed level for the exchange rate
(2) stands ready to intervene in the case of excess volatility, particularly resulting from speculative capital flows, in a manner consistent with the Bank’s inflation targeting framework.
In some instances, however, supply and demand may be at a disequilibrium, leading to excessive volatility in the value of the baht. The Bank of Thailand aims to ensure that the value of the baht is allowed to fluctuate under the following conditions;
(1) the Bank of Thailand stands ready to intervene in the foreign exchange market such that volatility of the exchange rate is at a level that the economy can tolerate,
(2) maintaining national competitiveness, as measured through the Nominal Effective Exchange Rate (NEER), which comprises currencies of important trading partners - and not just the US Dollar,
(3) any intervention does not go against economic fundamentals which would otherwise lead to further imbalances.