As
at 29 October, the Thai baht was recorded at 30.22 to the dollar. This is among
its highest points since May 2013. That takes its gain to over 7% this year,
more than any of its emerging-market peers except Russia’s ruble. The gains
have defied the efforts of Thai authorities, who fear the baht’s strength is
becoming a drag on the $505 billion economy.
Several
factors are attracting investors to Thailand, making it a haven for foreign
money. But its healthy current account tops them all, according to analysts at
Goldman Sachs Group Inc. The International Monetary Fund forecasts the country
will post a surplus of 6% of gross domestic product this year, almost double
that of Japan. Thailand’s reserves and negligible inflation also provide
investors comfort. The central bank’s foreign-cash reserves stand at $220
billion, the equivalent of more than 12 months of imports. And inflation,
currently 0.3%, has been running below the central bank’s target of 1% to 4%
since June.
Thailand
is also getting a boost from gold. A hub for bullion trading, Thailand has
benefited as jitters about the U.S.-China trade war and global economic
slowdown have driven a 17% gain in the price of the metal this year.
As
is always the case when currencies strengthen, exporters are suffering. The
country’s tourism industry, which accounts for about a fifth of GDP, is also
hurting. The Tourism Council of Thailand last month revised down its estimate
for visitor numbers this year to fewer than 40 million, citing the baht as the
biggest reason. The economy will expand 3% this year, down from 4.1% in 2018,
according to a Bloomberg survey of analysts.
What’s
the central bank doing about it?
On
Oct 10, the Bank of Thailand said it would relax capital controls to make it
easier for locals to move money abroad. Governor Veerathai Santiprabhob has
also called for more domestic investment to narrow the current-account surplus.
Authorities have taken measures to curb short-term capital inflows, including
cutting sales of Treasury bills. In July, they reduced the cap on non-resident
bank accounts to 200 million baht ($6.6 million) from 300 million baht and, to
boost surveillance, said the actual owners of local debt securities must be
reported.
The
Bank of Thailand cut its policy rate once this year, trimming it by 25 basis
points to 1.5% in August. Kanit Sangsubhan, one of seven members of the central
bank’s monetary policy committee, said a further reduction will not restrain
the baht.
One
thing they have been reluctant to do too much is interfere directly in the
foreign-exchange market, for fear of getting labelled a currency manipulator by
the U.S.
How
much more can the baht appreciate?
Right
now, all eyes are on whether the baht will breach 30 per dollar, a level it
hasn’t reached in more than six years. Of the 24 analysts surveyed by Bloomberg
on the currency, Morgan Stanley is the only one expecting it to reach that
point by the end of this year. The median estimate is for it to fall to 30.8 by
then and to 31 in 2020.
According
to the IMF’s real effective exchange rate calculations, which take into account
Thailand’s trade flows, the currency’s already well overvalued. It’s at the
strongest, by that measure, since its crash in 1997, which triggered the Asian
financial crisis.
The
strong baht may just be a product of global trends that are contracting exports
in the face of sluggish global growth and trade tensions. To weaken the baht is
not easy when others are also pursuing easing policies. And so the Thai central
bank is limited in its scope to act while pursuing its priority of economic
stability.
Reference:
1.
The Thai Baht reached a new 6-year high. Here’s why it’s surging, 25 Oct 2019,
Bloomberg
2.
Phornchanok Cumperayot, What Does a Rising Baht Mean for Thailand’s Economy? www.eastasiaforum.org
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