Stronger baht may not be sustainable, central bank warns

By Wichit Chaitrong
The Nation

 

 

The recent strengthening of the baht against the dollar may not be sustainable, the central bank warned, though an analyst said he is cautious about the prospects of a weaker baht for the year and that it may actually be relatively strong towards the end of the year. 

 

The baht, along with other regional currencies, has risen against the greenback now that there are signs of the novel coronavirus being contained, said Don Nakornthab, senior director at the Bank of Thailand.

 

The baht and other regional currencies were hit hard in March due to a fast-rising number of confirmed Covid-19 cases. The Thai currency weakened to about Bt33 against the dollar in March, but moved into the Bt32 range in recent weeks. 

 

However, Don said the baht is still under pressure due to a sharp drop in the current account surplus resulting from a contraction in exports and a dwindling number of foreign arrivals. 

 

The current account surplus in March dropped sharply to $700 million compared to surplus of $5.4 billion in February, he said, adding that the surplus may fall to zero if the pandemic lingers. He also pointed out that capital has been flowing out of Thailand in March largely due to foreign investors continuing to sell both equities and Thai government bonds, resulting in a capital and financial account deficit of $3.1 billion compared to a deficit of $4.4 billion a month earlier. 

 

Tourism is usually the largest source of current account surplus, which was worth $37.9 billion last year with 39.7 million arrivals generating hard currency income for Thailand. 

 

However, the number of tourists dropped 76.4 percent in March and is expected to drop down to 99 percent in April, Don added. Though governments across the world have started easing some lockdown measures, passenger transport is still limited, while Thailand has also extended the ban on incoming flights until the end of May. 

 

The baht has also been less volatile in recent days as investors have seen indications that Thailand may have been successful in combating the outbreak, he said, citing the fact that new confirmed cases have been down to a single digit for four days in a row. 

 

However, Kobsidthi Silpachai, chief of Kasikornbank’s capital markets research, said he was cautious about the prospect of a weakening baht. While the country’s current account has reduced, it is still in surplus territory, which means the demand for the currency is still greater than its supply, he said. There is also possibility that people are converting their US dollar accounts to baht as working capital becomes harder to come by because of Covid-19, Kobsidthi said.

 

 

Though there are still dividends to be paid to foreign investors in May, which could weaken the baht in the first half of this year, he conceded, adding: “But we see the baht going back to around Bt31.5 to Bt32 against the US dollar by the end of the year.”

 

 

Source: https://www.nationthailand.com/business/30387087

 

-- © Copyright The Nation Thailand 2020-05-01

 

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With 30 million Americans unemployed and the Fed borrowing $2-5 trillion? i think the baht will strengthen.

13 minutes ago, Henryford said:

With 30 million Americans unemployed and the Fed borrowing $2-5 trillion? i think the baht will strengthen.

Depends how you look at it.. outflow of capital to US is bringing down both $Au & Thai Bt..

 

Thai Bt to US$

 

$Au to $ US

 

47 minutes ago, webfact said:

a weaker baht for the year and that it may actually be relatively strong towards the end of the year. 

keep talking maybe it will come true

 

what about the massive public discontent coming soon ?

No expert, but, shenanigans aside, I thought it was the current account surplus that kept the baht strong, apparently not. 

i read 33.xx to the dollar by 4q then the Chinese economy is back on line and the baht strengthens again.  

Print more baht to help your people and Thai currency will depreciate at the same time.

The Baht seems to be pegged to the USD. It is allowed to move in a certain range compared to the USD. Other currencies like the Euro don't seem to be very important. And to complaints of the central bank that the Baht is too strong I don't listen anymore. They said this so often and it just moved further up. 

5 hours ago, smedly said:

what about the massive public discontent coming soon ?

And just what will the discontent do ? Vote them out ? And have a new government replaced a month later by a new junta ? 

6 hours ago, webfact said:

The current account surplus in March dropped sharply to $700 million compared to surplus of $5.4 billion in February

HOLY SMOKES! That is a serious move.

 

6 hours ago, webfact said:

He also pointed out that capital has been flowing out of Thailand in March largely due to foreign investors continuing to sell both equities and Thai government bonds,

Who was it that told me that foreign investors' increased selling could not affect the Thai baht?

I accept your apology.

So the Baht sits slightly below its 10-year average on the USD, at 32.50.  Even at this rate, Thai exports will fall to more competitively priced economies.  USA and other western countries will look to loosen up their all-China supply chains.  That means big investments will go elsewhere in the near future.

Now is the time to reign in your ever-rising currency, Thailand.

Quote

The current account surplus in March dropped sharply to $700 million compared to surplus of $5.4 billion in February, he said, adding that the surplus may fall to zero if the pandemic lingers. He also pointed out that capital has been flowing out of Thailand in March largely due to foreign investors continuing to sell both equities and Thai government bonds, resulting in a capital and financial account deficit of $3.1 billion compared to a deficit of $4.4 billion a month earlier. 

Well that escalated quickly. Would be interesting to know where those "foreign investors" hail from. Is the Northern Master pausing the laundromat?

7 hours ago, NCC1701A said:

i read 33.xx to the dollar by 4q then the Chinese economy is back on line and the baht strengthens again.  

@ 33 an opportune time for that 800,000 baht retirement bank transfer IMHO

9 hours ago, webfact said:

The current account surplus in March dropped sharply to $700 million compared to surplus of $5.4 billion in February, he said, adding that the surplus may fall to zero if the pandemic lingers.

Now isn't that interesting. Thailand is going broke, yet the Baht stays high.

Personally the baht shouldn't be what it is now it should be much weaker?  One day they say they got plenty of money in the reserves, great place to park their money in Thailand, now with the Virus they say they need to borrow something like 16 or 60 billion what is it?

 

It seems things have already crashed for them but they are holding up the baht so people won't know the truth!????

36 minutes ago, thailand49 said:

Personally the baht shouldn't be what it is now it should be much weaker?  One day they say they got plenty of money in the reserves, great place to park their money in Thailand, now with the Virus they say they need to borrow something like 16 or 60 billion what is it?

 

It seems things have already crashed for them but they are holding up the baht so people won't know the truth!????

Call me cynical, but I think that it is the Bangkok elite that forces the Bank to keep the Bhat high. Among them the 10 billionaires who refused to help out the poor over covid. A strong Bhat allows them to offshore their profits (Switzerland or wherever) at minimum personal cost. Meanwhile Thai exports go down the tube.

Two ways to get money: Tourism and exports. Rule out tourism this year, and strong baht is suicide when the rest of the world is running low on capital.

The consequences from the virus will be fully obvious in a few month. Now even all the companies who are working for export still must pay their wages and other costs. If they cannot export goods they must transfer cash from outside. Otherwise the companies would crash. Of cause this cannot be done this way for a long time. Also some Thai companies who are producing or provide services for the local market still must pay for their costs. The owners are changing some USD or EUR in THB to cover these expenses. When they see that the actual situation will continue they will either close the companies or reduce all costs to a minimum. I think that the THB will come down, but it takes time.

But maybe the economy will recover and everything return to normal... ???? Then the THB will become even stronger.

Since the cause of this fluctuation isn't permanent you can expect dramatic movement (as dramatic as it gets when dealing with currencies) swings as economies shrink and bounce back.

Nobody will come end 

I demand the rate 1 € = 53 THB back!!

The baht is influenced by the flow of money mainly from China. China gets money from US trade, then they spends the loot in Thailand. Then the Baht becomes powerful, extremely powerful.

1 hour ago, Winky Wilson said:

China gets money from US trade,

How that looking for the future?  ????

2 hours ago, NatureFilm said:

I demand the rate 1 € = 53 THB back!!

The most I got was £1 55thb, can't remember what years it was now, all a blur of booze and birds 55

18 hours ago, NCC1701A said:

i read 33.xx to the dollar by 4q then the Chinese economy is back on line and the baht strengthens again.  

Chinese economy will not improve if the entire world goes into a depression.

 

Nobody in Europe or US will be buying much for perhaps years.  China still is mostly a manufacturing power, and even domestic purchasing will decline if factories dump workers due to lower orders.

and wait for it...baht goes from 32.45 to the dollar to 32.04 overnight.....SMH....ouch here we go again

On 5/1/2020 at 2:35 AM, smedly said:

keep talking maybe it will come true

 

what about the massive public discontent coming soon ?

Yes indeed, I thought international investors put a value on political stability which is in jeopardy if you shut everything down and forget your people need to pay the rent and eat something.