Thai Baht's Strength Poses Economic Challenges: Economists Warn

[snoop1130]

 

The Thai Baht is experiencing considerable strength against the US dollar, but this financial trend is causing concern among Thai economists and exporters. Despite some benefits, the overall impact on Thailand's economy appears to be negative.

 

Dr. Naris Sathapholdeja, head of Data and Analytics at TMB Thanachart Bank, points out that a stronger baht makes Thai exports and tourism more costly. While it reduces the cost of importing oil—estimated at 1.5 trillion baht annually—this saving is overshadowed by potential losses in tourism revenue and export earnings, which collectively exceed 3.6 trillion baht per year. Naris forecasts the baht could strengthen to below 32 per USD, prompting exporters and tourism operators to urge government intervention.

 

Dr. Amornthep Chawla of CIMB Thai Bank attributes the baht's rise to a weaker US dollar and inflows of capital into emerging markets. He highlights that the Bank of Thailand's decision not to cut the base rate is drawing investments into the Thai bond market, further bolstering the baht. Increased confidence in Thailand's economic policies and its status as a gold trading hub also contribute to the currency's appreciation.

 

 

 

 

Kanchana Chokpaisarnsilp from Kasikorn Research Centre expects short-term fluctuations in the baht, ranging between 32.50 and 32.10 per USD.

 

This financial climate is hitting Thai rice exports hard. Chukiat Opaswongse of the Thai Rice Exporters Association reveals a significant slowdown, with exports likely to reach only 8.5 million tonnes this year, down from earlier projections. Rivals such as India and Vietnam, with weaker currencies, are poised to benefit at Thailand's expense.

 

The pressure is on as the economic effects of a strong baht ripple across Thailand, prompting calls for strategic financial measures to mitigate adverse impacts.

 

File photo for reference only

 

-- 2024-09-25

 

[chiang mai]

There have been several studies over the years that show export volumes are not significantly impacted by the exchange rate of the country that is selling, but almost entirely by the state of the economy of the country that is buying. Any loss that does occur is in THB revenue to the seller, but there is almost no change in volume terms. Most export trade bills are settled in USD, which means the buyer is not impacted by the Baht/dollar exchange rate, no matter if it strengthens or weakens. What does happen is exporters try to increase their price, to compensate for the loss of exchange rate, and this has the potential to reduce export volumes.

 

https://www.bot.or.th/content/dam/bot/documents/en/our-roles/monetary-policy/mpc-publication/monetary-policy-report/mpr-box/MPR_2018_Q2_BOX2.pdf

[worgeordie]

Message to the Government ...Please do something to weaken it.😁

 

regards worgeordie

[kickstart]

4 hours ago, chiang mai said:

There have been several studies over the years that show export volumes are not significantly impacted by the exchange rate of the country that is selling, but almost entirely by the state of the economy of the country that is buying. Any loss that does occur is in THB revenue to the seller, but there is almost no change in volume terms. Most export trade bills are settled in USD, which means the buyer is not impacted by the Baht/dollar exchange rate, no matter if it strengthens or weakens. What does happen is exporters try to increase their price, to compensate for the loss of exchange rate, and this has the potential to reduce export volumes.

 

https://www.bot.or.th/content/dam/bot/documents/en/our-roles/monetary-policy/mpc-publication/monetary-policy-report/mpr-box/MPR_2018_Q2_BOX2.pdf

You will know the answer to this, Thailand has/had a very large reserve of foreign currence abroad, would this have any effect on the baht's strength?

[CallumWK]

4 hours ago, chiang mai said:

Most export trade bills are settled in USD, which means the buyer is not impacted by the Baht/dollar exchange rate, no matter if it strengthens or weakens.

 

So if buyer places an order in January for x amount of Thai baht, and he places another identical order in July, for which he has to pay more USD because the Thai baht has got stronger since, he is not affected?

Of course the seller will adjust his July USD price according to current exchange rate, because he want to receive the same amount of Thai baht he received in January

[chiang mai]

3 hours ago, kickstart said:

You will know the answer to this, Thailand has/had a very large reserve of foreign currence abroad, would this have any effect on the baht's strength?

Do you mean, Foreign Currency Reserves? Foreign Currency Reserves are designed to guarantee trade, they give confidence that the foreign buyer of Thai products will be paid and and also by the BOT to help maintain Baht stability. They are held at the Bank of International Settlements (BIS) but are owned by the BOT, NOT by the government who is unable to access them. 

 

Once the FCRs reach a certain level, equal to about 6 months of imports, the cease to have a meaningful role. If the BOT only held say three months, Baht value would be compromised because Thai trade credit would be in question but beyond 6 months, there's no impact.

[chiang mai]

3 hours ago, CallumWK said:

 

So if buyer places an order in January for x amount of Thai baht, and he places another identical order in July, for which he has to pay more USD because the Thai baht has got stronger since, he is not affected?

Of course the seller will adjust his July USD price according to current exchange rate, because he want to receive the same amount of Thai baht he received in January

Your talking about currency trading and FOREX rather than the effect of baht value on exports, two very different things. The Baht is a  restricted currency that cannot be freely exported so nobody can place orders such as you have described, without BOT specific approval. Entities outside of Thai borders are heavily regulated as to how much THB they are allowed to hold, if they exceed those limits, BOT will not allow them to do business in Thailand or with anyone connected to Thailand where the transaction must go via the bank.

 

Thai exporters sell their goods overseas and typically finance their trades via EXIM, the bank of export/import which uses USD as the middle man. The seller wants Baht, the buyer may be paying in their local currency, both halves come together at the USD exchange rates for the respective currencies.

 

[CallumWK]

2 minutes ago, chiang mai said:

Your talking about currency trading and FOREX rather than the effect of baht value on exports, two very different things. The Baht is a  restricted currency that cannot be freely exported so nobody can place orders such as you have described, without BOT specific approval. Entities outside of Thai borders are heavily regulated as to how much THB they are allowed to hold, if they exceed those limits, BOT will not allow them to do business in Thailand or with anyone connected to Thailand where the transaction must go via the bank.

 

Thai exporters sell their goods overseas and typically finance their trades via EXIM, the bank of export/import which uses USD as the middle man. The seller wants Baht, the buyer may be paying in their local currency, both halves come together at the USD exchange rates for the respective currencies.

 

 

Maybe read my post again, slowly, because I didn't say anything about that .

I said the seller will adjust his sales price in USD to the exchange rate at that moment. Nothing to do with forex or whatever else you think to read in my post

[chiang mai]

8 minutes ago, CallumWK said:

 

Maybe read my post again, slowly, because I didn't say anything about that .

I said the seller will adjust his sales price in USD to the exchange rate at that moment. Nothing to do with forex or whatever else you think to read in my post

"So if buyer places an order in January for x amount of Thai baht".

 

I read that as a person buying Baht. But assuming you mean product, not Baht:

 

Prices of goods fluctuate based on supply/demand, input/commodities prices, weather (in the case of agricultural  products  and many other factors, I doubt there's any such thing as a continually fixed price  A buyer agrees a price for product X at point A in time, the price for product X at point B in time may well be expected to be different. The seller makes a greater profit when the rate swings in his favour and has to accept a cut when it doesn't. The seller doesn't have to sell but choses to, an an agreed price, using the prevailing rate of the day.

 

It's late now.....pick this up in the AM if necessary.

 

 

 

[fondue zoo]

 

 

Do large foreign reserves, in Thailand's case at least, relate to Thailand selling more goods to countries than it buys from said countries?

Is accumulation of foreign currency reserves aided by trade subsidies?

[chiang mai]

3 hours ago, fondue zoo said:

 

 

Do large foreign reserves, in Thailand's case at least, relate to Thailand selling more goods to countries than it buys from said countries?

Is accumulation of foreign currency reserves aided by trade subsidies?

BOT has a rule whereby exporters must sell their foreign currency income to the bank, within a specific timeframe. Until recently, that was within one year although now they are allowed to invest those funds overseas. BOT made the latest change quite recently, the purpose behind it being to attempt to weaken the Baht rather than constantly intervening in the markets themselves. Previously, every time an exporter sold USD earned from exports, to the BOT to buy Baht, that caused THB to strengthen. In the past, BOT rules have been the cause of the Baht strengthening but they are slowly addressing that.

 

The second part of your question has to do with balance of trade and yes, Thailand has frequently operated a trade surplus in the past. I don't think trade subsidies are the issue but I do think restrictions on imports might be. There's a lot of protectionism of the home market products and suppliers which shows up in the shops through a lack of choice of quality products at competitive prices.

[Captain Flack]

I have removed a post claiming to identify another poster. Please discuss the topic and not each other.

[chiang mai]

A Thai trader sells widgets that are priced in Baht, if an overseas buyer wants to buy those widgets he agrees a sales price in Baht, not in USD, because the seller is Thai, is based in Thailand and he spends Baht.

 

The seller has the option to ship the product and await payment in Baht but that’s risky and may mean a long wait until he is paid. The alternative is to demand cash payment up front, which most overseas buyers will resist, for obvious reasons.

 

The compromise solution is for the seller to use an EXIM Bank who will manage the export process and ensure both parties are satisfied and that payment is only made when the goods are satisfactorily received. But because the overseas buyer’s home currency is not Baht, the Bank uses USD as the transaction currency. The buyer is not interested in the THB/USD exchange rate because it’s not relevant to him. The buyer is only interested in the exchange rate he must pay using his home currency against USD. And since foreign currencies move in different ways against USD, the sellers home currency may move differently to the way the Baht moves (hard pegged, soft pegged, crawling peg, cross rate free floating etc etc).

 

Buyers of Thai exports only care about the value of their home currency against USD (if the trade is settled in the traditional way) and whether or not their home economy is sufficiently buoyant to where they can sell what they have bought from Thailand, in their home country, at the right price. The value of THB/USD is of no interest to them, unless they are buying currency which they can’t do anyway.

[hotchilli]

13 hours ago, worgeordie said:

Message to the Government ...Please do something to weaken it.😁

 

regards worgeordie

Seconded..

[RichardColeman]

The amount of money I send Thailand has dropped around 3000 baht a month due to this fluctuation, not a huge amount in the grand scheme of things and it will not effect me much, BUT many english people losing £75 ish a month it may well have them buying cheaper noodles from the 711.

 

As for tourism and export being 8% more high, THAT will be an issue. Having high season rates in quite a lowish season to me stinks of manipulation somewhere

[chiang mai]

I don't know how many tourists would cancel a holiday in Thailand, just because the rate was 43 instead of 47, I'm pretty sure I wouldn't, but that's just me.

[mdr224]

Why go there during high season? Too many tourists, unfavorable exchange rate.

[chiang mai]

24 minutes ago, mdr224 said:

Why go there during high season? Too many tourists, unfavorable exchange rate.

I don't see there's any evidence that the Baht strengthens against USD in high season every year.

 

https://www.xe.com/currencycharts/?from=THB&to=USD&view=5Y

 

 

[sammieuk1]

It hit a nine year high versus the £ on the 20th' of July and been falling since the 21st' good news , bad news any kin' news it goes up that's the diamond encrusted kevlar Baht but how and why is most mysterious 🤔 

[john donson]

don't you know by know it is probably the rich elite deciding this, when it is good to get better baht for their money stashed or goods sold... 

[realfunster]

1 hour ago, john donson said:

don't you know by know it is probably the rich elite deciding this, when it is good to get better baht for their money stashed or goods sold... 

there is likely some truth in this. Certainly over the past decade or so of a comparatively strong baht, there has been a lot of Thai corporates making overseas acquisitions. You could argue that is a reasonable economic strategy for the country as a whole. 

 

it’s probably also contributed to individuals off shoring personal investments (I know I have been..) with a view to repatriating later with a weaker baht.
 

Potentially also a reason for the revenue department’s increased focus on incoming overseas remittances. 

[chiang mai]

4 minutes ago, realfunster said:

there is likely some truth in this. Certainly over the past decade or so of a comparatively strong baht, there has been a lot of Thai corporates making overseas acquisitions. You could argue that is a reasonable economic strategy for the country as a whole. 

 

it’s probably also contributed to individuals off shoring personal investments (I know I have been..) with a view to repatriating later with a weaker baht.
 

Potentially also a reason for the revenue department’s increased focus on incoming overseas remittances. 

An interesting theory. But the Baht only strengthens when USD is sold to buy Baht, any Thai corporate that was making an overseas acquisition wouldn't be doing that. From memory, most of those acquisitions have been made in the UK and Europe where earnings are not in USD. Selling GBP or Euro's against THB wouldn't have anything like the same effect.

 

A simpler and more probable explanation is the one sided trade surplus and balance of trade numbers, this is the same problem that the US Fed has when it refers to Thailand as a currency manipulator. If Thailand imported more, it would be selling THB against USD and helping keep the currency weaker but protectionism of the home market and home products doesn't allow that.

[Hardcastle P]

6 hours ago, chiang mai said:

BOT has a rule whereby exporters must sell their foreign currency income to the bank, within a specific timeframe. Until recently, that was within one year although now they are allowed to invest those funds overseas. BOT made the latest change quite recently, the purpose behind it being to attempt to weaken the Baht rather than constantly intervening in the markets themselves. Previously, every time an exporter sold USD earned from exports, to the BOT to buy Baht, that caused THB to strengthen. In the past, BOT rules have been the cause of the Baht strengthening but they are slowly addressing that.

 

The second part of your question has to do with balance of trade and yes, Thailand has frequently operated a trade surplus in the past. I don't think trade subsidies are the issue but I do think restrictions on imports might be. There's a lot of protectionism of the home market products and suppliers which shows up in the shops through a lack of choice of quality products at competitive prices.

And what about tourism no one has mentioned the effects on that I notice.

[chiang mai]

36 minutes ago, Hardcastle P said:

And what about tourism no one has mentioned the effects on that I notice.

A few posts further back.

[chiang mai]

An article on THB from a few days ago, perhaps interesting for those who haven't read it.

 

https://www.bangkokpost.com/business/general/2870433/all-eyes-on-thai-baht

 

There seems to be an acknowledgement that the MPC will cut rates in October and that the Baht will remain volatile for the rest of the year, potentially heading back to 36 by the end of the year. 

 

There's a second but unscheduled article below by Chartchai, who is a highly regarded economist. He discusses Baht exchange rates, again, a very interesting read as always from this highly regarded economist.

 

https://www.bangkokpost.com/opinion/opinion/2872367/bot-ought-to-revise-exchange-rate-policy

 

Chartchai argues that the recent Baht appreciation was largely the result of speculative inflows. He goes on to argue that whilst the BOT is on target by managing the Baht against NEER and REER (trade weighted and currency bucket comparisons), that doesn't hep exporters. he also says that he calculates the fair exchange rate to be 36, not BOT's 33. Je also repeats this mantra of Thai exports being too expensive when the rate is tot strong at 33.

 

What he doesn't mention is the large excess profits Thai exporters were making when the rate was at 37! He also doesn't mention that 33 was a fair rate for exporters for many years, what happened, did Thai cost inflation suddenly become so much greater than anywhere else in the world that it now requires a 10% increase prices!

 

I think there are two factors not mentioned in this argument. One is that suppliers in competing countries are able and willing to undercut Thai prices and are eating into Thai market share, they are becoming more competitive. Secondly, Thai's are renowned for being unwilling to reduce prices and that probably also means they wont reduce their sales forecasts estimates either. If the exchange rate eats into their profit margin, that's not seen as a valid reason to reduce the selling price, it may even make them increase it....how many times before have we seen evidence of that in the Thai economy! If we're approaching hjgh season, prices must be increased, no exceptions and regardless of whether there are customers or not!!!

 

SO, whether or not this whole business is exchange rate related, is not entirely clear, I think it may well just be an excuse that isn't valid, once you dig into things. Let's face it, even Chartchai says that the BOT is right on target with its NEER and REER exchange rates.

 

 

 

 

[StayinThailand2much]

Can anyone explain to me, why, with the money being borrowed by the government for this, the baht is suddenly this strong?

[chiang mai]

7 minutes ago, StayinThailand2much said:

Can anyone explain to me, why, with the money being borrowed by the government for this, the baht is suddenly this strong?

Because:

- government debt remains low by comparison to other countries;

- the debt is 95% in Thai Baht with very low foreign currency debt;

- the historic trend is for THB to strengthen so capital inflows are already speculating on that    by buying Baht;

- large foreign currency reserves support the export trade.

 

You should understand that most of the Baht strengthening has resulted from USD becoming weaker, because the US Fed has reduced interest rates and is forecast to continue doing so. The only Baht strengthening has come from speculative capital inflows.

 

 

 

 

[DrPhibes]

Hmm, USD hits 32 and 4 months later 36.  so, 12.5% in 4 months tax free.  May have to get the Mrs to meander down to the private exchange guys for some $s soon 😉 

[StayinThailand2much]

2 hours ago, chiang mai said:

Because:

- government debt remains low by comparison to other countries;

- the debt is 95% in Thai Baht with very low foreign currency debt;

- the historic trend is for THB to strengthen so capital inflows are already speculating on that    by buying Baht;

- large foreign currency reserves support the export trade.

 

You should understand that most of the Baht strengthening has resulted from USD becoming weaker, because the US Fed has reduced interest rates and is forecast to continue doing so. The only Baht strengthening has come from speculative capital inflows.

 

Great insights, thank you.