Thai Baht - Opinions And Views

[sonicdragon]

"The BoT have some experienced and very well educated people"

I can add some personal knowledge to that.

I was at the LSE in Houghton St (London) recently and came across a large group of young men speaking Thai.

I entered into conversation with them. They informed me that every year a large group of young BOT staff receive a scholarship to study monetary policy and economics at the LSE at the LSE for a year.

So clearly they receive adequate training at the UK's top educational establishment .

Note..in case you were wondering : No there were no women in the group when I met them but the women may have been elsewhere at the time !

I concur. I did a masters in economics at Birkbeck College, London (not quite up there with the LSE but not far behind) in the early 90's are there were 2 thai's on the course. I seem to recall that they were both sponsored by the BoT. There was also a thai there doing a PhD in some field of macroeconomics.

[Old Man River]

"The BoT have some experienced and very well educated people"

I can add some personal knowledge to that.

I was at the LSE in Houghton St (London) recently and came across a large group of young men speaking Thai.

I entered into conversation with them. They informed me that every year a large group of young BOT staff receive a scholarship to study monetary policy and economics at the LSE at the LSE for a year.

So clearly they receive adequate training at the UK's top educational establishment .

Note..in case you were wondering : No there were no women in the group when I met them but the women may have been elsewhere at the time !

Many are well educated at the BOT, not the least of which is Dr. Tarisa. However, while education and common sense are highly important, Dr. Tarisa has said that they are in situations that they have never experienced. The last time (1997), the THB was pegged and it was heading south. Now it is floating and heading north. Dr. Tarisa has asked regional central banks for their ideas, but they all say they are trying to learn from the successes and failures in Thailand should they face the same situation.

It is hard out there for a central banker.

[sonicdragon]

Many are well educated at the BOT, not the least of which is Dr. Tarisa. However, while education and common sense are highly important, Dr. Tarisa has said that they are in situations that they have never experienced. The last time (1997), the THB was pegged and it was heading south. Now it is floating and heading north. Dr. Tarisa has asked regional central banks for their ideas, but they all say they are trying to learn from the successes and failures in Thailand should they face the same situation.

It is hard out there for a central banker.

I agree 100%. Even in a well developed, large, open economy it is very hard. And here we have an underdeveloped, small, partially open economy that has a military junta to answer to. I for one wouldn't want to be in their shoes

[xbusman]

Perceptive and reasoned approach. Its pretty much impossible to manage an economy even with accurate data and vast pools of excess capital, strong banks, few NPLs, and a huge pool of talent. No one can disagree more vehemently than an economist when facing the same data. Just look at the responses on Thai visa by all the armchair economists with their IT or Eng Lit degrees.

The problems facing the Central Bank are too numerous to list. Poor data, lack of resources, closed economy, NPLs, business oligarchies, military setting monetary policy, and on and on. I am glad I dont have to face their dragons every day.

[TRIPxCORE]

The U.S. economy is not in good shape which gives THB plenty of reason to appreciate vs. USD. From a newsletter:

This sub prime meltdown will have far reaching implications for the US economy. In my opinion, the next big news will be a jump in consumer bankruptcies. If the Feds are giving the sub prime lenders trouble about lax lending standards, they need to take a look at the credit card companies! I receive several 'pre approved' offers in the mail each week telling me I can have several thousands of dollars in credit simply by signing the enclosed application. While these offers go straight to the shredder in my house, many individuals have trouble turning the 'free' credit down. The US consumers are digging themselves into a very deep hole of debt and with any type of economic slowdown I have to believe consumer bankruptcies are going to sky rocket. It isn't shaping up to be a very pretty picture for the US economy. Just another reason to move at least a portion of your investment portfolio out of the US$

[robert2]

Have you noticed that Thai bills are rarely crumpled, but folded nicely?

And I have never seen counterfeit thai money?

Why?

The King is pictured on them so you treat them with care.

The penalty of counterfeiting is probably up there with the drug smuggling, so no sane person dare to do that.

[sonicdragon]

Maybe, but does it have anything to do with this thread ?

[bingobongo]

some excerpts that stood out for me were..............

RISKY BUSINESS

Clouds on Thailand's horizon

March 27

"The Bank of Thailand has in recent months spent more than a trillion baht to keep the currency weak. "

"Thailand's instability-driven collapse of domestic demand is also plainly discernible in sliding real investment growth. "

"Moreover, further devaluation of the US dollar could lead to the depreciation rather than appreciation of the Thai baht, as investors are forced to unwind their yen carry trades. That means that in the months ahead both Thai asset prices and the military-led government could tumble in unison. "

http://www.atimes.com/atimes/Southeast_Asia/IC27Ae02.html

[Naam]

"Moreover, further devaluation of the US dollar could lead to the depreciation rather than appreciation of the Thai baht, as investors are forced to unwind their yen carry trades."

Good LORD! why would a depreciation of USD lead to an unwinding of JP¥ carry trades and therefore a depreciation of THB?

[sonicdragon]

"Moreover, further devaluation of the US dollar could lead to the depreciation rather than appreciation of the Thai baht, as investors are forced to unwind their yen carry trades."

Good LORD! why would a depreciation of USD lead to an unwinding of JP¥ carry trades and therefore a depreciation of THB?

I might be wrong but I believe that the writer was referring to a general weakening in the US$ (and therefore against the Yen). If he was talking about a depreciation against the baht only, then it would have been more appropriate to talk of baht strength than dollar weakness.

[highchol]

"Moreover, further devaluation of the US dollar could lead to the depreciation rather than appreciation of the Thai baht, as investors are forced to unwind their yen carry trades."

Good LORD! why would a depreciation of USD lead to an unwinding of JP¥ carry trades and therefore a depreciation of THB?

I might be wrong but I believe that the writer was referring to a general weakening in the US$ (and therefore against the Yen). If he was talking about a depreciation against the baht only, then it would have been more appropriate to talk of baht strength than dollar weakness.

my take only!

I cant see a link either. Dollar drops carry trades unwind... yes ok.

Dollar drops thai exports affected and economy suffers, baht weakens ..yes

that the unwinding of carry trades causes baht depreciation..cant say that

unless they meant to say ... unwinding of carry carry trades could cause the dollar to drop which inturn would lead to a baht depreciation!

[Naam]

"... unwinding of carry trades could cause the dollar to drop "

that's not quite logical. present times carry trades in low interest currencies like JP¥ and CHF vs. USD are miniscule compared to CHF and/or JP¥ versus high yielding currencies like TRY, BRL and ISK. speculators demand quite a big buffer in order to get out without any losses when the tide turns.

moreover, the BOJ raised after an extended period of time the central bank rate a "whopping" 0.25% and the next increase (most probably a long time away) won't be more than another quarter point (just my personal opinion). the last hike had virtually no impact as far as JP¥/USD rate is concerned. and for a speculative carry trader it doesn't really matter whether the interest difference and therefore his profit is reduced from 8.25% to 8.00% (JP¥/ISK) or in case of JP¥/TRY the profit "only" 18.25% instead of 18.50%.

Edited March 27, 2007 by Dr. Naam

[Losangels]

Agree that the governer and her immediate assistants of BOT are facing a tough job of curtailing Baht rise, won't it be wise to seek outside help like the private industry or even (god forbid) foreign expert to help out? At this moment a lot of details are not disclosed to the public for whatever the reasons. BOT usually like to work in secreacy(sp) again for whatever reasons (fear of mistakes and loss of face possibly). As it turns out the major Thai banks are now are profiting big time in speculating with the Baht. We have a bunch of Phds working at BOT with a bunch of facinating theories but with little practicality

[Steve Ireland]

THB: Defying Gravity (Morgan Stanley)

The THB is racing ahead, but it is trading further and further

away from its underlying fundamentals. We are mindful of

the risks going forward.

Summary

In spite of the exchange controls, the THB has managed to

outperform all other AXJ currencies so far this year, and by a

wide margin (8.2% YTD versus an average of 0.2% YTD for

AXJ minus Thailand). Since we think that Thailand’s

fundamentals are deteriorating, we attribute much of the

THB’s recent appreciation to investors positioning themselves

for a relief rally in anticipation of an end to the exchange

controls in the near future. We, however, take a more

pessimistic view on the THB outlook for four reasons: (1)

investors are likely to be frustrated with the pace of

dismantling the exchange controls; (2) the domestic economy

is rapidly losing growth momentum; (3) the exchange rate is

now already worryingly overvalued; and (4) falling interest

rates will make it increasingly expensive to hold the THB.

No Quick End to the Exchange Controls

On March 1, the Bank of Thailand (BoT) announced further

amendments to its exchange controls, effective on March 15.

In our view, they do little to loosen the restrictions imposed on

the FX participants (see the Appendix to this article for a

further explanation). However, there is still a growing

anticipation that the exchange controls will be fully revoked

soon. This runs contrary to the recent comments made by

BoT Governor Watanagase and even Finance Minister

Chalongphob, who was a strong critic of the controls prior to

his appointment to the government.

Both officials have admitted that some form of exchange

controls is required. Watanagase said that any further

relaxation of controls would only occur if the exchange rate

were weaker. Chalongphob said that he was concerned with

being seen as pressuring the BoT to speed up the dismantling

of the controls. He fears that such an action could threaten

the credibility of the central bank’s independence in the eyes

of the capital markets. It therefore seems to us that some

investors will need to revise their expectations for the ending

of these exchange controls.

Domestic Economy Is Decelerating

While the market has fixated on the exchange controls, the

Thai economy has been decelerating. Consumer and

business confidence have been hit hard by: uncertainties

surrounding the political coup; introduction of the exchange

controls; proposed new draconian laws on foreign ownership;

and Islamic insurgency in the south. As a result, retail sales

contracted 1.8%Y in 4Q06 and investment slowed to 2.4%Y in

4Q06 from 15.0%Y in 1Q05. The key areas of aggregate

demand – consumption and investment – are therefore losing

momentum, in our view.

Carry Costs Set to Increase

Inflation pressures are subsiding due to weakening domestic

demand and the passthrough from the strong exchange rate.

With core inflation down to 1.4%Y, real (core) interest rates

have risen above 3% – an unsuitably tight monetary stance

when the economy is rapidly losing growth momentum, in our

view.

In the previous cyclical downturn, real interest rates fell below

0.5%. Now this current downturn is not as severe, of course,

but a return to the normal range of real interest rate levels

observed since 2000 (see Exhibit 2) suggests to us that it is

realistic to expect a decline in real yields by at least 150-

200bp over the course of this year.

Further, this unwind in the real interest rates is unlikely to

come from higher inflation, given current price trends. We

therefore believe that the BoT would likely undergo further

easing of around 150bp as compared to the 75bp of easing

currently discounted by the market. Consequently, we believe

that the carry costs are likely to become dearer for the THB

going forward.

THB Is Worryingly Overvalued

While the domestic economy has waned, the external sector

has admittedly held up. However, the THB’s continued

appreciation during 2007 has meant that it has now become

significantly overvalued against the USD (+20%). This is a

meaningful divergence from fair value. There are lagged

effects, of course, and we believe that this overvaluation will

begin to have a sizeable impact on exporters’ price margins

and their overall international competitiveness in the months

ahead. Not only does this pose risks for future GDP growth,

but it also raises the issue of how much the THB can

appreciate from here, given that it is already stretched.

Bottom Line

The THB is trading further and further away from its

underlying fundamentals as investors tactically try to catch the

anticipated relief rally from an early end to the exchange

controls. However, we believe that investors could risk

policymakers frustrating them in the near term and trading

against the underlying macro, valuation and carry

fundamentals in the medium term. From a risk/reward

perspective, we do not see it as a favorable opportunity.

Doc,

I am emmigrating to Pattaya in Thailand in December and have approximately 5,000,000 THB (125,000 Euros) to bring with me. What would be your advice regarding same? Leave in Irish bank account in Euro's and draw from ATM's/Banks as I need or transfer all to Thai Bank account when opened? Should I wait for a specific exchange and change then in the hope that I change at a better rate than when I move? Any thoughts or advice appreciated.

Cheers

Steve (Ireland)

Edited March 27, 2007 by Steve Ireland

[Naam]

I am emmigrating to Pattaya in Thailand in December and have approximately 5,000,000 THB (125,000 Euros) to bring with me. What would be your advice regarding same?

it's still a long time till december Steve and it doesn't make too much sense to make plans now.