Thai Baht Drops On Rising Trade Deficit

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Thai Baht Drops on Rising Trade Deficit: World's Biggest Mover

BANGKOK: -- The Thai baht had the biggest fluctuation of any currency, falling after a government report yesterday showed the nation's trade deficit rose to the highest in nine years.

Record imports widened the trade gap in June, increasing demand for other currencies needed to pay for goods from abroad. The Thai economy shrank for the first time in four years in the first quarter, helping the baht drop 6.9 percent against the dollar this year, the second-worst performer in Asia-Pacific.

``The trade deficit is bad for the baht,'' said Chatchawan Jumruswittayawong, a currency trader at Bank of Ayudhya Pcl in Bangkok. ``Demand for foreign currencies will increase, while demand for the baht will be lower.''

The baht fell 0.5 percent to 41.78 against the dollar as of 10:17 a.m. Bangkok time, matching its decline yesterday, which was also the biggest move of any currency. The baht may drop to 42 this week, Chatchawan said.

The deficit rose to $1.88 billion last month, the highest since April 1996, from a shortfall of $1.76 billion a month ago, the customs department said yesterday. In June 2004, the country had a trade surplus of $239 million.

Thailand this year may have its largest trade deficit in almost a decade on surging imports, Commerce Minister Thanong Bidaya said on June 29.

Oil Bill

The economy is facing a record bill for imports, partly because of higher crude oil prices, which rose 42 percent from a year ago. Exports rose 13 percent to $8.99 billion in May, slowing from a 15 percent gain the previous month, the central bank said on June 30.

Thailand's gross domestic product fell a seasonally adjusted 0.6 percent from the fourth quarter, when it expanded 1.5 percent, the National Economic and Social Development Board said on June 6. The government agency cut its 2005 growth forecast to as little as 4.5 percent from at least 5.5 percent.

The baht also weakened after China's central bank yesterday said it won't revalue the yuan again in the ``foreseeable future.''

The People's Bank of China July 21 allowed the yuan to rise for the first time since 1995, letting it gain 2.1 percent to 8.11 from the old peg of 8.30 per dollar. Further gains would give China the opportunity to buy imports more cheaply from Asia and make it harder for the country's exporters to compete abroad.

The yuan revaluation ``is more good for Thailand than bad,'' Finance Minister Somkid Jatusripitak said on July 22. ``Exports will rise because the baht is gaining by a smaller percentage than the Chinese yuan.''

The baht on July 22 had its biggest advance since Sept. 22, 2003, after China let the yuan rise.

``After China told investors not to expect further yuan adjustment, Asian currencies moved lower again,'' Chatchawan said.

The world's biggest movers are based on changes in price or yield and are screened for the size of the market and amount of daily trading.

--Bloomberg 2005-07-28