Comprendre la récente hausse du baht thaïlandais

Toute la Thaïlande 2022

Thailand’s currency, the baht, traded against the dollar at 36.08 on Monday, August 1, an appreciation of 1.4% from the previous week.

The Bangkok Post newspaper delved into the causes of this rebound and the implications for the economy.

What are the forces driving this change?

Since the beginning of this year, the baht has weakened 10.3% against the US dollar.

See the situation live: THB Thai baht course

It is worth noting where this trend started before we address the rebound.

In recent months, currencies have been mainly influenced by the general development of the US dollar, triggered by the invasion of Ukraine which caused a supply shock through blockades, destruction of farms and factories and a series of sanctions and counter-sanctions.

Kobsidthi Silpachai, head of capital markets research at Kasikorn Bank (KBank), explained that the supply shock added to inflationary pressure and ultimately led the US central bank to tighten monetary policy and reduce the supply of US dollars.

As a result, the US dollar rose against other currencies, including the baht.

The United States Federal Reserve (Fed) has raised interest rates three times so far this year.

The reference rate is now between 2.25% and 2.50%.

“Since World War II, 11 of the Fed’s 14 tightening cycles have ended in a recession, which has a 78% probability.

This caused the markets to change their minds,” Kobsidthi said, adding that the futures market’s forecast for the path of the fed funds subsequently declined.

“This was confirmed by the release of US GDP data for the second quarter of this year, which contracted 0.9%, the second quarter in a row.

This is a technical recession.”


KBank’s head of capital markets research added that changes in expectations for the fed funds led to changes in expectations for the US Dollar Index (DXY), leading to a mean trend reversal.

Wei-Liang Chang, currency and credit strategist at DBS Bank in Singapore, commented on the effects of the Fed’s rate hike on the baht.

“The baht rallied against a weakening US dollar as the market expects smaller rate hikes from the Fed on slowing US growth.

Another factor is stronger economic momentum resulting from the reopening of international travel, which may help support the baht,” Chang said.

See: Thailand upbeat for its economy as tourism recovers faster than expected

What has the central bank done so far?

Bank of Thailand Governor Sethaput Suthiwartnarueput recently said there was no need to hold a special meeting to reset the currency as other countries in the region, such as Singapore and the Philippines, have done.

The central bank will allow the baht to move based on market forces.

The move will be closely watched and if there is excessive volatility, the central bank will take action, Sethaput said.

Is the weak baht part of the central bank’s strategy to support tourism and exports?

Tourism and exports have long been the two main engines of the economy.

The Information Center of the Tourism Authority of Thailand reports that as of July 31, foreign tourist arrivals numbered 3,334,326.

The main markets are Malaysia, India, Singapore, the United Kingdom and the United States.

Overall, the government expects around 10 million international visitors in 2022.

Meanwhile, exports increased by 12.7% in the first half of 2022 compared to the previous year.

One of the best performing categories is food and agricultural products, which grew 20.4% in the second quarter of this year compared to the previous year.

The main products shipped are potatoes, rice, panela and pet food.

KrungThai Compass attributes this meteoric growth to the weak baht and high global demand for food due to the war between Russia and Ukraine.

Kobsidthi said the baht’s weakness was not part of the central bank’s plan to revitalize key sectors.

“The Bank of Thailand’s stance on currencies generally focuses on stability, rather than direction.

It does this by buying and selling US dollars/bahts with its foreign exchange reserves.

We can track this by calculating changes in the weekly foreign exchange reserve position.

If changes in foreign exchange reserves increase, the central bank should buy US dollars and sell bahts to weaken the latter.

If foreign exchange reserves decline, the bank must sell to strengthen the baht, thereby controlling import inflation.

If the central bank attempts to weaken the baht, changes in foreign exchange reserves should be consistently positive, rather than alternating (as is currently the case),” he said.

Mr. Kobsidthi added that he found no empirical evidence that a weaker currency improves long-term export competitiveness by increasing global export market share.

“Thai exports have benefited from the global recovery since Covid-19.

However, with the war in Ukraine continuing, global trade and globalization will face increasing headwinds.

We forecast export growth of 7.8% in 2022, compared to 18.8% growth last year,” he said.

On Thai tourism, Kobsidthi said the sector is expected to receive 7.2 million foreign arrivals in 2022 compared to 430,000 in 2021.

Does Thailand’s Huge Forex Reserve Promote Volatility?

Thailand has a huge foreign exchange reserve amounting to $201.4 billion as of June 2022.

Amonthep Chawla, head of research at CIMB Thai Bank, said the recent short-term volatility in the baht may not be relevant to the FX reserve.

It will only be if the Bank of Thailand steps in to allow the baht to move at the same rate as its counterparts.

He warned that Thailand should think of ways to use its foreign exchange reserves more efficiently.

“Forex reserves can be seen as insurance.

You never know if they can hit us somewhere.

Suppose there is now a crisis in an emerging market due to high foreign debt, a huge current account deficit, and a weakened currency.

Thailand could one day experience high volatility with different symptoms like high inflation, high household debt and financial instability.

It is good to have a foreign exchange reserve to dampen volatility and build confidence.

But too large a foreign exchange reserve could be a dilemma.

We are too afraid to take risks, which leads to low growth,” he warned.

Meanwhile, Anusorn Tamajai, a former Bank of Thailand board member, said many studies show a long-term equilibrium relationship between foreign reserves and exchange rates.

“Also, any change in foreign exchange reserves would cause fluctuations in the exchange rate, but not the other way around.

The reform from the fixed exchange rate regime to the flexible exchange rate regime not only increased the flexibility of the baht exchange rate, but also the accumulation of Thailand’s foreign exchange reserves,” Anusorn said.

What is the outlook for the baht against other emerging market currencies?

Mr. Chang of DBS in Singapore said the baht still looks overvalued based on its long-term fair value metric.

“The baht is the worst performing currency in ASEAN in terms of total return for this year.

The baht is likely to continue to weaken against regional currencies as Thailand still has trade deficits and Thai rates are also lower than other countries in the region.

Poon Panichpibool, a market strategist at Krungthai Bank (KTB), expressed a similar view on the short-term outlook for the baht.

He said the baht may not appreciate significantly against emerging markets except those facing a weak economic outlook, such as China.

However, he believes the baht could gain strength in the fourth quarter of this year as Thailand enters peak tourist season.

Source: Bangkok Post

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