The sharp depreciation of the baht in recent weeks has revived the debate on the short-term prospects for the Thai currency. The baht fell below the threshold of 37 to the dollar, hitting a six-month low.
Among underperforming Asian currencies, the Japanese yen saw the sharpest fall of 155 to the dollar, a 10.5 per cent plunge in the current year, followed by the baht, which has depreciated 7-8 per cent.
The Indonesian rupiah is also on a slide, prompting the country’s central bank to raise the policy rate by 0.25 percentage point to 6.25 per cent on April 24 in order to stabilize the currency.
When asked whether the Bank of Thailand would take some actions to shore up the baht, Piti Disyatat, deputy governor of the central bank, said it was closely watching the movement of the Thai currency.
“The central bank does not want to see market dysfunction, such as market disruption or a liquidity crunch. So far, we have not seen such market behavior,” Piti said.
The baht’s slide against the strong dollar follows a trend across the region because the market is worried that the US Federal Reserve may keep the interest rate high for longer than earlier speculated.
Piti referred to the latest US economic data, which showed slower growth and persisting high inflation rates in the first quarter.
Wall Street too has adjusted its expectations of the Fed cutting the rate twice during the year to just once, probably in September.
The high US interest rate has contributed to the stronger dollar. The US Fed fund rate is at a 23-year high in a range of 5.25- 5.5 per cent compared with the 2.5 per cent rate in Thailand.
With an interest that is half of what’s on offer in the US, capital has flown out of Thailand’s stock and bond markets.
For instance, since early this year foreign investors have sold Thai shares worth over 66 billion baht as of April 26.
They have also dumped Thai government bonds resulting in capital outflows of a trillion baht.
The weather factor
Piti also feared that the ongoing hot weather might result in fewer visitors until May, which would affect current account flows. It was a seasonal factor, he said, assuring that foreign tourists would come back later this year.
Another seasonal factor leading to exchange outflows is payment of dividends to overseas shareholders in listed companies. The total amount of dividends is estimated at US$2 billion in the second quarter.
Piti was confident that rising exports, spurred by cheaper goods because of the baht’s decline, would bring in foreign exchange and shore up the value of the baht.
Piyasak Manason, a senior economist at InnovestX Securities Co, shared Piti’s view, arguing that the weaker baht would help boost Thailand’s exports.
The baht should weaken now as over the past 12 years it had appreciated about 17-18 per cent against the currencies of other countries in the region that are Thailand’ s export competitors, he said.
Generally, a stronger baht hurts Thailand’s export competitiveness as it makes Thai products more expensive.
A stronger baht also encouraged Thais to travel in large numbers to Japan where the currency is weaker, resulting in capital flows to Japan.
Piyasak projects the baht to rebound to 34.5 to the dollar in the fourth quarter based on assumptions that the US Federal Reserve would lower its policy rate in November.
Baht’s movement linked to economy
Looking ahead, the baht’s value will depend on how the Thai economy performs.
Faster growth will encourage capital inflows, making the currency stronger.
Piyasak, however, worries about delayed budget disbursement.
The budget for the current fiscal year, which should have been passed in September or October last year, became law only recently due largely to the political gridlock in forming a new government after May’s general election did not have a clear winner.
The delay in passing the budget has also held back spending of 120 billion baht in public investment, he said.
He does not see the government focusing on investment spending, as it would want to set funds aside for the 500-billion-baht digital wallet scheme, which aims to boost consumption.
With fewer months to spend the money, government spending may fall short of the target as fiscal year 2024 will end in September.
The government claims the digital wallet scheme will spur economic growth by an additional 1.2 to 1.8 percentage point. Piyasak believes at best it will boost economic growth by 0.7 percentage point — 0.2 percentage point this year and 0.5 next year.
An eye on budget deficits
International rating agencies, including S&P Global Ratings and Fitch Ratings, are also closely watching the rising government debt.
If they downgrade Thailand’s sovereign credit rating, it could potentially impact the value of the baht.
By Thai PBS World’s Business Desk
