As the Thai baht has increased to a 30-month high this week, the export sector is suffering huge revenue losses. An economist anticipates a 25 basis point policy rate cut by the Bank of Thailand.
Dr. Kirida Bhaopichitr, an economist from the Thailand Development Research Institute, or TDRI, said that the a policy rate cut by the end of this year could help to stimulate the Thai economy, as it has not performed well this year.
“As economic growth in Thailand is not picking up, a reduction in the policy rate of 25 basis points could bolster economic growth. Inflation will not increase significantly, even if the authority cuts the rate, since the inflation has been tightly controlled,” the economist said.
Despite demands from business leaders and the government to lower the policy rate, Dr. Kirida emphasised that the Bank of Thailand’s primary role is to slow the appreciation of Thai baht, adding that the market will determine the rate, depending on the global economy.
While the Thai baht has increased to 32.60 baht against the US dollar, from a recent low of about 37 baht, Dr. Kirida noted that there is an annual cycle in the Thai baht’s value, with the Thai currency strengthening in the last quarter each year.
By studying the trajectory of Thai baht over the past few years, the economist points out that it depreciated to 38 baht (to the USD) in 2022. “It swung up, however, to 33 baht, before falling back to 36 baht,” according to Dr. Kirida.
Regardless of the volatility of the Thai baht, the economist stresses that the keys to mitigating impacts on exports and tourism are the quality of products and services.
“If you don’t maintain the competitiveness and quality of your products or services, you cannot become the price makers. It would be difficult for exporters and tourism operators to generate revenues, if foreign buyers offer the same price, when the Thai baht is appreciating,” the economist opined.
According to Dr. Kirida, the 12% appreciation of the Thai baht over the past three months stems from the US Federal Reserve rate cut. She adds that the Fed needed to reduce the rate to reverse the slowdown in the US economy, but a half of a percentage point cut is beyond expectation.
In addition to the rate cut, the economist highlighted another reason why the Thai baht has strengthened over the past few months. She said that “A large amount of capital has flown into the stock market. Foreign direct investment is also at a high volume.”
By Franc Han Shih, Thai PBS World
Full interview:
