While the Dec 18 capital controls have resulted in broad stability for the baht, bankers caution that the trend remains decidedly towards further appreciation. Dollar weakness in the international market and the likelihood of further current-account and capital surpluses in 2007 point towards further gains for the baht this year, even with the Bank of Thailand's 30% reserve rule on foreign inflows.

Prasarn Trairatvorakul, the president of Kasikornbank, agreed that economic fundamentals pointed towards further appreciation for the baht.

''Appreciation of the currency hinges on two factors _ trade account and capital flows. While the 30% reserve rule has helped guard against speculative inflows, money continues to come in through the country's trade surplus,'' he said.

The baht currently is trading at 35.7 to the dollar in the local market, or modestly weaker than the 35 baht to the dollar seen in mid-December, before the reserve rule was implemented.

In the offshore market, the baht is significantly stronger, at around 33.4 to the dollar, due to low liquidity as the central bank rule has effectively split the market into two.

''Appreciation of the baht offshore represents a price set in a market with no liquidity. But there is a psychological effect on the onshore market, and eventually, we will see convergence in the rates,'' Dr Prasarn said.

Pakorn Peetathawatchai, an executive vice-president at Siam Commercial Bank, noted that transaction volumes in December and January had increased sharply for a variety of factors, including pure trading transactions, greater demand for forwards and hedging transactions, and currency exchange transactions by tourists.

Even small and medium-sized firms had become more active in the currency market, he said, thanks to greater awareness of the need to guard against risk.

Tak Bunnag, an executive vice-president at Bank of Ayudhya, noted that as forward premiums were priced at a discount, exporters were more likely to sell-off dollars immediately rather than park the funds in a foreign currency deposit or buy forwards.

''The fact that forwards are at a discount means that if a client sells baht six months ahead, their returns are going to be less than if they sold today,'' he said.

Songpol Chevapunyarote, head of capital markets at Kasikornbank, said the fact that exporters were more reluctant to take out forward cover due to more favourable rates in the spot market was not necessarily a positive sign.

''Forward volumes jumped sharply in the first two weeks after the [Dec 18] capital measure, as traders worried about potential losses,'' he said.

''But after the baht stabilised, we've seen a slowdown in hedging, both because of discount premiums and the fact that rate volatility has dropped.''

Forward contracts are priced based upon differentials in interest rates, inflation expectations and current spot rates.