How long will the Thai Baht continue to weaken?

Thai baht continues to weaken against  

western currencies

This year the Thai Baht has seen a lot of movement. From dropping below the 29.00 level to now passing the 32.00 level it is sitting today at 32.12. According to "The Nation" This is short term however tourists now will be getting more bang for their baht and will be able to spend more and for foreign investors this is a great time to bring money into The Kingdom. Atricle from "The Nation" below.

Plunge in the baht 'a short-term issue'
Business Desk
The Nation

Economic fundamentals strong, currency may rise again: analysts

BANGKOK: -- Thai economists and financial authorities say the sharp depreciation of the baht is likely to be a short-term phenomenon and foresee stability returning when the economy picks up, as economic fundamentals remain strong.

Commerce Minister Niwattumrong Boonsongpaisan said yesterday that the government would not interfere with the Bank of Thailand's work in stabilising exchange rates.

After a brainstorming session with the prime minister and Finance Minister Kittiratt Na-Ranong, Niwattumrong said the heart of this issue was to ensure stability and alignment with regional currencies. He said it would take a month or two to see if the baht's decline would boost Thai exports and whether the export target of 7-7.5 per cent would be revised.

Two forces are speeding the depreciation of regional currencies: the United States' plan to scale back its asset-buying or quantitative-easing (QE) measure because of improving economic health; and the worse-than-expected economic data within the region. Investors are shifting money back to the US.

The baht passed 32 to the dollar yesterday, a level unseen since September 2010, and economists say it could strengthen if the local economy shows improvement in the second half.

Tak Bunnag, head of Bank of Ayudhya's treasury group, said foreign investors had shifted investment out of Asia for some time. So if the Federal Reserve really acts to taper its QE, the baht should not fall much more, or it could even rise again.

In the year to date, the baht, at 32.12, has weakened by 4.8 per cent against the US dollar. Thailand's current-account deficit in the first half stood at 1.9 per cent.

Tak attributed part of the depreciation to the National Economic and Social Development Board's downward revision in the economic forecast on Monday. GDP figures roughly weigh 30 per cent when foreign investors make a decision, he said. This year's growth estimate for Thai gross domestic product was cut on Monday to 3.8-4.2 per cent after slowing in the second quarter to 2.8 per cent.

Kampol Adireksombat, senior economist at Tisco Securities, said the baht had fallen beyond its fundamentals.

His view was that the Thai economy should improve in the second half. If exports pick up, Thailand could show a balanced current account or even a slight surplus. In a worst-case scenario, a deficit of less than 1 per cent of GDP was anticipated. In these scenarios, it was likely the baht would strengthen against the dollar to around 31.5 later this year.

While urging the Bank of Thailand to restore exchange-rate stability via use of foreign reserves of US$170 billion (Bt5.45 trillion) or so, Kittiratt insisted yesterday that the economy remained strong. Even with slowing growth in the second quarter, investment was on track and would keep unemployment low.

To boost the economy in the second half, aside from pushing for the disbursement of the state budget and 20 measures backed by the Cabinet on August 6, the government would resort to no new measures, said Kittiratt.

"All the measures are not to boost the economy in the short term, but to invest in what we should and what will create long-term value," he said. All state agencies should also lend a hand in boosting consumer and investor confidence.

He said that in the short term, the macroeconomic picture remained satisfactory. The baht's depreciation was not worrying, in light of low inflation, as that would cushion negative impacts on importers.

-- The Nation 2013-08-23

 

Thailands concerns over the rise of the Thai Baht

BANGKOK: -- The Bank of Thailand is widely expected to take action soon to rein appreciation of the baht as its "excessive" gain is having a widespread negative impact on the export sector as well as the government's tax revenue.

 

Bank of Thailand's former chairman says BOT should buy more dollars.

According to this article i found today on Thai Visa Thai's are getting concerned about the continual growing strength of the Thai baht against major currencies. Check out the article below...

Markets are braced for the action. Touching a new 16-year high yesterday with a 0.18 per cent rise from Friday's closing to 25.58 per US dollar, the baht later lost 0.2 per cent to 28.74 at 3.12pm. So far this month, the baht has gained more than 2 per cent against the dollar and 8 per cent over the Japanese yen, making Thai goods more expensive in the countries where trade is denominated in the two currencies.

Pakorn Peetathawatchai, Stock Exchange of Thailand’s executive vice-president, yesterday recommended investors to closely monitor exchange rates, saying that there could be capital controls due to the baht's excessive gain.

"It remains to be seen how the authorities will act to control the hot money. We can't afford to take no action. We have never witnessed the baht appreciate this quickly, or the sharp rise in the stock market like this," Pakorn said.

In the first quarter, the SET index gained 12.15 per cent, making it the world's best-performing market after Vietnam (18.7 per cent), the Philippines (17.1 per cent), Laos (15.9 per cent) and Indonesia (14.5 per cent). Overseas investors bought US$2 billion more Thai sovereign debt than they sold this month through to April 19, adding to net purchases of $9.8 billion in the first quarter.

To stem the baht's appreciation, former Bank of Thailand chairman MR Chatu Mongol Sonakul urged the central bank to buy more dollars, rather than cut the policy rate.

Speaking on the sidelines of a seminar yesterday, Chatu Mongol said that it is necessary to take care of the export sector, which is suffering acutely. He said he understood that financial stability is the BOT's priority, but it should also pay attention to economic progress.

He noted that heavier sterilisation - the buying of US dollars to depress the baht's price - would boost the BOT's accounting loss, but said that's just a figure. China's central bank has also accumulated more than $3 trillion in foreign currencies to stabilise the yuan. With reserves of more than $200 million - 60 per cent of gross national product (GNP), the BOT has the capacity to strengthen its sterilisation efforts, Chatu Mongol said.

He strongly opposed a cut in the policy rate, as suggested by Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong and exporters, saying that could spur consumption and hence inflation.

"It's better for the central bank to shoulder the sterilisation cost than to cut the rate, as higher inflation would affect the entire country," he said.

Foreseeing continued inflows of foreign capital, he noted that it was time to allocate some foreign reserves to finance a sovereign wealth fund, as the fund's overseas investment would counter capital inflows.

Hurting revenues:

While saying that the baht's rise is too fast, Paiboon Kittisrikangwan, an assistant governor of the Bank of Thailand, was adamant that BOT had policy options in hand. Yet, for now, it wants to observe market reactions and assess the necessity of measures.

On Friday, the Commerce Ministry, which still maintains this year's export target at 8 to 9 per cent, will hold a discussion with exporters. The Thai Frozen Foods Association earlier estimated that its producers will lose Bt20 billion for every Bt1 increase in the baht against the dollar. The association is fretting that it may fail to achieve its revenue target of Bt1 trillion this year.

The strong baht is also now expected to hurt the government's revenue projections.

Wanee Thasanamontien, principal adviser on tax strategies, said that export-oriented companies in particular will see a sharp decline in revenue when dollar-denominated income is converted to baht. With lower profits, the companies will also pay lower income taxes.

Meanwhile, the stronger baht would make dollar-denominated imports cheaper. The Revenue Department, which collects taxes according to CIF (cost, insurance and freight) rates, will then collect a smaller amount of tax.

This will further lessen the department's revenue, as the corporate income tax cut to 20 per cent this year would slash annual revenue by another Bt80 billion. Wanee estimated that if corporate earnings show annualised growth by 25 per cent or more, this would compensate for the missing revenue. The department aims to collect Bt1.77 trillion this fiscal year.

 

 The Nation 2013-04-23