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

Edited 7 hours ago by CallumWK

[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.

 

 

 

[CallumWK]

19 minutes ago, chiang mai said:

"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.

 

 

 

 

You know very well what I mean Mike, you only want to have the last word as always.

 

When the Thai baht strengthens, the buyer has to pay more USD, or whatever other currency, for the same goods so he will search for a cheaper source (country), and that will affect exports from Thailand negatively.

You don't have to be a rocket scientist to realize that.

 

 

Edited 2 hours ago by CallumWK

[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?