The Thai baht continues to weaken against the US dollar, falling to 38/$US, mainly due to the strengthening of the greenback, as a result of the recent increase in the US Federal Reserve’s base rate, which has forced other currencies, including the Thai baht, to weaken. Analysts say, however, that this is not unexpected.
According to Kasikorn Bank, for every 0.25% US base interest rate increase, the Thai currency will weaken by about 38 satang against the US dollar. The bank said that the situation is just short-term and the Thai currency is expected to strengthen to about 35/$US at the end of this year.
CIMB Bank, however, has forecasts that the Thai baht may drop to 40/$US, if the US Federal Reserve increases its base rate further, as this would increase the interest rate gap between the two countries.
CIMB said that the Bank of Thailand can either gradually increase the key interest rate in steps of 0.25%, at the risk of causing turmoil in the capital markets and increased capital outflows, which may expose Thailand to aggressive currency speculation, or they could increase the key interest rate substantially, by .50%, which would help to stall runaway inflation and capital outflows, but at a the substantial cost of slowing down economic recovery.
