Weakening Thai baht forecast due to economic and freight cost factors

[webfact]

 

Analysts are forecasting a weakened Thai baht, the Thai currency, due to factors including poor economic performance, high freight costs, and disagreements over interest rate reductions. The baht is anticipated to fluctuate within the range of 36-36.50 to the US dollar this month.

 

On Wednesday, the baht recorded a decline, falling below 36 to the US dollar, and was quoted at 35.96-98 to the US dollar yesterday morning. This was in response to a slight easing of the dollar, following a minor reduction in US economic growth than initially projected at 3.3% for the last quarter of 2023, as reported by the Kasikorn Research Center, reported Bangkok Post.

 

However, the US economy demonstrated resilience, achieving a 2.5% growth in 2023, surpassing the 1.9% increase in 2022. The driving force behind this growth was consumer expenditure, which constitutes approximately 70% of US economic activity, and recorded a 3% annual increase in the final quarter of the year.

Patrick Poulier, the executive vice president and chief of the financial markets function at Siam Commercial Bank, opined that Thailand’s economic recovery this year would continue to be hindered by structural issues. This follows a GDP growth in the last quarter of 2023 that fell below the anticipated 1.7%, largely due to a slow resurgence of tourism expenditure, and languid public investment and consumption.

“In the short term, the baht is tending to depreciate as the dollar gains in line with treasury yields, which are expected to remain high in the near term,” Poulier predicted. He anticipates the baht’s depreciation against the dollar, estimating a range of 36-36.50 baht in March.

 

BofA Global Research has observed a recent consolidation of the baht as equity outflows stabilised before transitioning to small net inflows in February. However, the currency continues to respond negatively to any potential rate cuts or dovish tilts by the Bank of Thailand.

 

Discord between government and central bank

 

Analysts Adarsh Sinha and Claudio Piron, co-heads of Asia FX and rates strategy at BofA, noted in a recent research report that the discord between the government and the central bank continues to affect market confidence. This, coupled with weak exports and growth data, further weakens Thai baht.

 

The same research report highlighted the baht’s vulnerability to increased freight costs, which are reportedly the highest in the region. “The baht is exposed to rising freight costs, as this could add to import bills,” the report explained. By the end of the first quarter, BofA anticipates the baht to trade at 36 to the US dollar.

 

However, the report suggests an improvement in the currency’s fundamental factors over the year, as the current account surplus expands and rate differentials shrink, offering more cushion against capital flows. “That would likely result in lower baht volatility in the second half of the year and appreciation from current levels,” the research concluded.

 

by Alex Morgan 

Photo courtesy of iStock

 

Source: The Thaiger 2024-03-01

 

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[flyingtlger]

55 minutes ago, webfact said:

The baht is anticipated to fluctuate within the range of 36-36.50 to the US dollar this month.

 

Do you remember when the baht was 52.98 to the dollar back in 1998?

Wish those days would come back....

[tomazbodner]

3 minutes ago, flyingtlger said:

 

Do you remember when the baht was 52.98 to the dollar back in 1998?

Wish those days would come back....

I remember when it was 25 to the dollar before 1998.

Wish those days would come back....

[Thingamabob]

No meaningful reference to debt levels.

[hotchilli]

4 hours ago, flyingtlger said:

 

Do you remember when the baht was 52.98 to the dollar back in 1998?

Wish those days would come back....

I can remember my first trip in Thailand, got 65 baht to the British pound.

And only cost 450 quid for a direct return flight

Edited March 1 by hotchilli

[BritScot]

28 minutes ago, hotchilli said:

I can remember my first trip in Thailand, got 65 baht to the British pound.

And only cost 450 quid for a direct return flight

My first trip to Thailand it was above 70 baht to the British pound and things were so cheap. I would travel very light and buy my clothes in Thailand.

[Wrwest]

Good news for our family. Monthly transfers meaning a bit more to spend on March. Not all negative for Thailand. The baht will remain in Thailand and support a Thai Wife and zstepdaughter which would not happen if I were to be priced out of the market like I was in my home country. The result might well be the same … look for another country in which to call home. 

[trainman34014]

Some good news this year then !

[John Drake]

8 hours ago, tomazbodner said:

I remember when it was 25 to the dollar before 1998.

Wish those days would come back....

 

So would I if the same cost of living and prices came back with it.

[observer90210]

The proper rate to boost tourism will be to give 45 THB for 1 euro. And keep it on that rate for the next 5 years.

[Mike Lister]

5 minutes ago, observer90210 said:

The proper rate to boost tourism will be to give 45 THB for 1 euro. And keep it on that rate for the next 5 years.

Why would a government want to devalue their currency, just to support international tourism which is only 12% of GDP? And in doing so, that devaluation would cost them billions of extra baht per year in increased oil import costs.

[scottiejohn]

24 minutes ago, observer90210 said:

The proper rate to boost tourism will be to give 45 THB for 1 euro. And keep it on that rate for the next 5 years.

A somewhat illogical concept IMO but why just the Euro, assuming that any such action had any potential positive impact on the Thai economy?

[Digitalbanana]

9 hours ago, flyingtlger said:

Do you remember when the baht was 52.98 to the dollar back in 1998?

You are asking us to remember a specific exchange rate to the nearest cent 26 years ago? I can remember it pegged at 23.0THB in 1983 if that helps.