Baht keeps strength despite coronavirus outbreak, economic decline

[webfact]

Baht keeps strength despite coronavirus outbreak, economic decline

By The Nation

 

 

The Thai economy in 2020 would expand at a much lower rate than previous forecast and way below its full potential, mainly due to the combined impact from the coronavirus outbreak, delay to enactment of the Annual Budget Expenditure Act and drought on a large number of businesses and employment, according to the minutes released today by the Monetary Policy Committee of the Bank of Thailand .

 

 On February 5 ,  the committee  voted unanimously to cut the policy rate by 0.25 percentage point from 1.25 to 1.00 per cent, in a bid to shore up the economy.

 

Regarding exchange rates, the committee said although the Thai baht depreciated somewhat in recent days , it remained potentially inconsistent with economic fundamentals. During  inter-meeting period, the currency depreciated against the US dollar. The baht also depreciated against regional currencies as reflected by a decline in nominal effective exchange rate (NEER) despite its high level compared with that in the past. The recent  depreciation was mainly a result of  investors’ concerns over the softening outlook of  the Thai economy,  from both domestic and external prespectives , as well as the Bank of Thailand’s relaxation of foreign exchange regulations to facilitate capital outflows. 

 

Investors started to view that the baht could depreciate after a substantial appreciation last year, the report said. 

 

Meanwhile, a divergence in the trends of the baht and the prices of gold, a safe-haven asset, was more prominent amid the  coronavirus outbreak ,  reflecting a diminishing safe-haven status of baht-denominated assets from the investors’ perspective, according the central bank.

 

 

In an interview, Kobsidthi Silpachai, head of capital markets research at Kasikornbank told the Nation that the baht is currently 5.6 per cent overvalued.

 

While the country would have lower current account surplus this year, it still remains high, he said. Kasikornbank has lowered its projection of current account surplus to US$33 billion this year, down from the previous forecast of $33.8 billion, he said.

 

He said imports was  still falling faster than exports, resulting in a continuous  surplus of the current account, the  main factor behind the baht's appreciation.

 

The weighted- average interbank exchange rate was Bt 31.187  per dollar  at the close of trade on February 19, according to the central bank.

 

Many research houses have revised downward their economic growth forecast to below 2 per cent rate this year.

 

Source: https://www.nationthailand.com/business/30382434

 

-- © Copyright The Nation Thailand 2020-02-20

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[ukrules]

No surprise there ????

[soalbundy]

Everything flows, nothing remains, all is flux, nothing is stationary........Heraclitus 500 BC.

[30la]

4 hours ago, webfact said:

Many research houses have revised downward their economic growth forecast to below 2 per cent rate this year.

I think the bang will be huge in 2020 and in future years!

[Liverpudlian]

This countrys politics always reminds me of the three wise monkeys !

[kwak250]

Even if Thailand went to war with a neighbouring country the baht would strengthen.

I am trying to imagine what would weaken the baht?

Not much as far as i can see!

[keith101]

Watching the Aussie dollar to baht rate as soon as it reaches the 21 mark it immediately reverses down to low 20.8s almost without exception .

[kwak250]

6 minutes ago, keith101 said:

Watching the Aussie dollar to baht rate as soon as it reaches the 21 mark it immediately reverses down to low 20.8s almost without exception .

Yeah its as if as soon as they notice it they say lets get that sorted out.

Back down you go.

[hotchilli]

5 hours ago, webfact said:

Baht keeps strength despite coronavirus outbreak, economic decline

The Irish folk have a great word for this: shenanigans

[phkauf]

The only reasonable explanations for the baht's strength at this point I can think of are:

- as the article mentioned imports are down relative to exports, which keeps the current account surplus high. This is very important so as not to repeat a 1997 type crash. But it also signals something VERY ominous - the economy is slowing dramatically and could fall into a recession.

- the cross currency flows ($ to baht, etc) are not significant enough to push the rate down at this point. In other words, Thailand just doesn't matter much compared to other major currencies. The Baht is definitely not a safe haven currency, but it is stable enough not to panic sell at the moment.

Whatever the reason, I just don't see how the baht can stay this high for very long. 

[justin case]

big companies or families are buying a lot of properties / companies in farangland

 

they pay LESS because of the strong baht

 

ding ding ding

[Grumpy John]

As Confucius said "Man who want money to work for him should work in a bank"  Mr Wong was his real name, but my smart Rs older brother named him Confucius.....and the name stuck!

[saengd]

48 minutes ago, phkauf said:

The only reasonable explanations for the baht's strength at this point I can think of are:

- as the article mentioned imports are down relative to exports, which keeps the current account surplus high. This is very important so as not to repeat a 1997 type crash. But it also signals something VERY ominous - the economy is slowing dramatically and could fall into a recession.

- the cross currency flows ($ to baht, etc) are not significant enough to push the rate down at this point. In other words, Thailand just doesn't matter much compared to other major currencies. The Baht is definitely not a safe haven currency, but it is stable enough not to panic sell at the moment.

Whatever the reason, I just don't see how the baht can stay this high for very long. 

Ummm, not quite correct I'm afraid!

 

The current account surplus is a result of the trade surplus, that means exports are higher than imports. But this has nothing to do with 1997 since that was caused by offshore borrowings in USD and a BOT where the foreign currency reserves were all tied up in long dated instruments hence they were unable to defend the currency.

 

BOT operates a managed float which means THB is soft pegged to USD, cross currency flows are therefore dictated by the USD/THB pair. And Thailand is indeed a safe haven currency at present and has been for quite some time, that's part of the reason why capital inflows or FDI hot money has been so strong. The recent two cuts in the lending rate was an attempt to cool those flows, which has worked to a large degree, but that has no impact on the trade surplus, which is why the currency remains strong.

 

 

[NCC1701A]

36 to the USD is the best you can hope for sometime in the next 5 years. 

 

that is it. then a return to maybe as low as 25 to the USD.

 

sometime after 2040 the Thai Baht will be the new global safe haven currency and the economic powerhouse of the entire world. everyone will speak Thai. Cities all over the world will be plunged into darkness but Bangkok will be the engine of the world.   

[saengd]

1 minute ago, NCC1701A said:

36 to the USD is the best you can hope for sometime in the next 5 years. 

 

that is it. then a return to maybe as low as 25 to the USD.

 

sometime after 2040 the Thai Baht will be the new global safe haven currency and the economic powerhouse of the entire world. everyone will speak Thai. Cities all over the world will be plunged into darkness but Bangkok will be the engine of the world.   

I agree with the first part of your post, the jury is out on the rest of it however. 

[rvaviator]

6 minutes ago, saengd said:

Ummm, not quite correct I'm afraid!

 

The current account surplus is a result of the trade surplus, that means exports are higher than imports. But this has nothing to do with 1997 since that was caused by offshore borrowings in USD and a BOT where the foreign currency reserves were all tied up in long dated instruments hence they were unable to defend the currency.

 

BOT operates a managed float which means THB is soft pegged to USD, cross currency flows are therefore dictated by the USD/THB pair. And Thailand is indeed a safe haven currency at present and has been for quite some time, that's part of the reason why capital inflows or FDI hot money has been so strong. The recent two cuts in the lending rate was an attempt to cool those flows, which has worked to a large degree, but that has no impact on the trade surplus, which is why the currency remains strong.

 

 

So do you subscribe to the theory that the THB will crash in 2020 .. or at least be significantly devalued .. ?

[sammieuk1]

Why else would anyone say the virus is 100% under control other than those with a great big vested interest in keeping the Baht high????

[saengd]

3 minutes ago, rvaviator said:

So do you subscribe to the theory that the THB will crash in 2020 .. or at least be significantly devalued .. ?

Not really, I can see it loosing around 6% or so, maybe. Mostly that's a function of a number of things coming together such as the flu, the drought, tourism numbers and the impact on exports of Trumps trade war with China which has further disrupted supply chains. The possibility of a global recession also remains quite high, all those things are outside of Thailand's direct control.

[Brickbat]

Nation of cheap labour who are mostly paying off debt . Great for big business. Baht will stay strong. Unfortunate for expats bar USA. Aussie taking a dump because our smart govt has a handle on the economy to boost exports. And we are so reliant on China who is also taking a beating. Interesting times never seen before. The tough keep going! 

[saengd]

3 minutes ago, sammieuk1 said:

Why else would anyone say the virus is 100% under control other than those with a great big vested interest in keeping the Baht high????

Tough question, one possible answer might be that it is, not that tourist numbers has that much of an impact on the value of THB.

 

Anecdotally: I had to go to the hospital in Chiang Mai yesterday, I ended up going to three of them because I was looking to get a test done that is not routine. Have to say I was actually very impressed at the protocols they had in place, Suan Doc Mahraj has a person at the door taking peoples temperature and handing out masks plus entry and exit routes are strictly controlled. At McCormick the process was similar, everyone was wearing masks and there was a nurse restricting access on the main door. Bangkok Hospital was less controlled and I could walk right in but the nurses are much cuter :). Seriously, masks and hand gel every where, large signs warning visitors, not a bad effort  really.

[saengd]

Just now, Brickbat said:

Nation of cheap labour who are mostly paying off debt . Great for big business. Baht will stay strong. Unfortunate for expats bar USA. Aussie taking a dump because our smart govt has a handle on the economy to boost exports. And we are so reliant on China who is also taking a beating. Interesting times never seen before. The tough keep going! 

You mean the nation is paying off debt or the cheap labor is paying off debt? FWIW Thailand's debt ratio is extremely low at 40% of GDP, the IMF is actively encouraging them to borrow more hence they are now running a larger budget deficit.

[Brickbat]

37 minutes ago, saengd said:

You mean the nation is paying off debt or the cheap labor is paying off debt? FWIW Thailand's debt ratio is extremely low at 40% of GDP, the IMF is actively encouraging them to borrow more hence they are now running a larger budget deficit.

Thailand's household debt accounted for 78.4 % of the country's Nominal GDP in Dec 2018, compared with the ratio of 78.1 % in the previous year.

[saengd]

1 hour ago, Brickbat said:

Thailand's household debt accounted for 78.4 % of the country's Nominal GDP in Dec 2018, compared with the ratio of 78.1 % in the previous year.

So you're talking about household debt...........it's not big by comparison to other countries.

[Brickbat]

57 minutes ago, saengd said:

So you're talking about household debt...........it's not big by comparison to other countries.

Cheap labor paying off debt is household debt. 
snd cheap wages makes it unsustainable. Most don’t understand simple cash flow. Not even the lenders. Maybe engineered by the ruling 1%

[sscc]

3 hours ago, rvaviator said:

So do you subscribe to the theory that the THB will crash in 2020 .. or at least be significantly devalued .. ?

Yes I do and I expect Thai B Baht be devalued in 2020.  

Looking at the 1-year chart in USD Vs Baht.  As of now Feb 20, 2020 and mid-Feb 2019 USD Vs Baht exchange is just about equal.   I am concerned about the bad news affecting the Thai economy in the near future.

 

    

I    

[Scott Tracy]

Ducking soothsayers at it again....

 

Best guess scenarios.

[saengd]

1 hour ago, Brickbat said:

Cheap labor paying off debt is household debt. 
snd cheap wages makes it unsustainable. Most don’t understand simple cash flow. Not even the lenders. Maybe engineered by the ruling 1%

As apposed to national debt which is where the country owes money through borrowings, your initial post on this subject wasn't clear which you were referring to, now we know.

Edited February 20, 2020 by saengd

[Scot123]

Thailand has zero to do with the Baht. Other forces within and especially outside Thailand are the reason for the Baht not Thailand. I would suspect if Thailand was once again placed on the watch list the Baht wod come tumbling down or is it just coincidence that this all started when Thailand was removed from the watch list. I draw my conclusions from observation. Coup baht rises, 75% of foreign investment leaves Thailand the Baht rises, illegal closing of a foreign gold mine breaking international law subsequently losing the court case and the Baht rise, country in recession (using the dictionary definition) the Baht rises, exports crashing year on year (except for gold stones etc "hard wealth" leaving Thailand) the Baht rises, tourists on the ground in Thailand disappearing at alarming rates, the Baht rises and the virus and the Baht rises, oh and the property market emploding the Baht rises. My conclusion is the Baht is a criminal currency so until it is placed again on the watch list nothing will effect it. 

[saengd]

2 minutes ago, Scot123 said:

Thailand has zero to do with the Baht. Other forces within and especially outside Thailand are the reason for the Baht not Thailand. I would suspect if Thailand was once again placed on the watch list the Baht wod come tumbling down or is it just coincidence that this all started when Thailand was removed from the watch list. I draw my conclusions from observation. Coup baht rises, 75% of foreign investment leaves Thailand the Baht rises, illegal closing of a foreign gold mine breaking international law subsequently losing the court case and the Baht rise, country in recession (using the dictionary definition) the Baht rises, exports crashing year on year (except for gold stones etc "hard wealth" leaving Thailand) the Baht rises, tourists on the ground in Thailand disappearing at alarming rates, the Baht rises and the virus and the Baht rises, oh and the property market emploding the Baht rises. My conclusion is the Baht is a criminal currency so until it is placed again on the watch list nothing will effect it. 

Sadly you just flunked economics in Thailand 101, don't give up your day job just yet!

[Kenny202]

5 hours ago, saengd said:

Ummm, not quite correct I'm afraid!

 

The current account surplus is a result of the trade surplus, that means exports are higher than imports. But this has nothing to do with 1997 since that was caused by offshore borrowings in USD and a BOT where the foreign currency reserves were all tied up in long dated instruments hence they were unable to defend the currency.

 

BOT operates a managed float which means THB is soft pegged to USD, cross currency flows are therefore dictated by the USD/THB pair. And Thailand is indeed a safe haven currency at present and has been for quite some time, that's part of the reason why capital inflows or FDI hot money has been so strong. The recent two cuts in the lending rate was an attempt to cool those flows, which has worked to a large degree, but that has no impact on the trade surplus, which is why the currency remains strong.

 

 

What do u see happening in the future? I have no clue about cuurencies but the baht over the years has been very high and very low. Is there any chance it will devalue in the foreseeable future and what events would be needed to turn it around and decline? Surely exports must be slowing down with Thailand being uncompetive exchange wise and the general slow down in the world economy