Thai Baht Slide Triggers Inflation Worries

[webfact]

Baht slide triggers inflation worries

By The Nation

MR Chatu Mongol Sonakul, chairman of the Bank of Thailand, said yesterday that monetary authorities were facing a delicate balancing act, as the trade-off between exchange and inflation rates, coupled with domestic political upheavals, could trip up the economic expansion.

"There's been a need for the baht to weaken. Now, it's weakening but it puts pressure on inflation. It's a Catch-22 situation. Vietnam could not make it because of this. In principle, the MPC [Monetary Policy Committee] has to try to strike a balance. The political issue is another risk factor," he said.

The rise in inflation stems partly from the weakening baht, while the central bank and the central bank's MPC will have to maintain equilibrium between the exchange rate, interest rate, inflation rate and foreign exchange reserves, he said.

The baht yesterday broke the 31-per-dollar level, hitting 31.05 before closing at 30.96-97.

The depreciation of the baht will give a push to exports, the country's main economic engine, which will definitely support economic growth. The central bank favours a leisurely easing of the baht now that the currency is yielding some of its gains from last year.

"When the baht is depreciating, we have to manage it so that it is not too fast as the depreciating baht will help exporters, but it may also impact inflation," Chatu Mongol said.

The economy could continue to accelerate if inflation is low, he said. Countries with high inflation mostly have low rates of growth, as investors are afraid of making investments, while those with low inflation will enjoy higher economic expansion.

The University of the Thai Chamber of Commerce was also concerned about inflation and the political situation.

The government should extend the freeze on product prices and raise the price ceiling for diesel to Bt31-Bt32 per litre, said Thanavath Phonvichai, director of the university's Centre for Commerce and Business Studies.

Continuing the moratorium on price hikes, scheduled to expire in March, would slow down the rise in product prices, he said. Rising prices could put pressure on inflation and the central bank will have to notch up the policy interest rate to contain inflation, he said.

The policy rate should increase in the third quarter of this year, as production costs will not be affected much, he said. The rate is expected to move up 50-100 basis points this year.

The cap on diesel price at Bt30 per litre should not last beyond March. Increasing the diesel price ceiling to Bt31-Bt32 per litre is another suggestion for allowing more time for people to adjust. Maintaining the diesel price for too long and using other parts of the budget like excise taxes, to support the policy will not be positive for the economy in the long run, he said.

Political gatherings are another risk factor for the economy now. This was reflected in the big loss on the Stock Exchange of Thailand last Monday, he said.

Even though the political problem has not eroded consumer confidence, it affects the economy, especially confidence in tourism, he said. If the government can't control the political situation, it will definitely affect the economy, he said.

-- The Nation 2011-01-26

[Heng]

Sweet.

[siampolee]

Sign of a free market economy, when the money rolls in the locals cry.,

"How good we are."

When the money rolls out the locals cry.

''It's those nasty foreign investors taking THEIR money away that undermines our economy.

Relax those biased inane self protective laws, then foreign investment will be stable.

Till then capricious whims on the part of investors will control what passes for the Thai Economy.

Edited January 26, 2011 by siampolee

[givenall]

Sweet.

It wasn’t too long ago that KBank predicted Bath to go up to 26/$. I guess these expert used Monkey Theory

[bitterbatter]

Sweet.

It wasn't too long ago that KBank predicted Bath to go up to 26/$. I guess these expert used Monkey Theory

From everything I have been reading about the dollar and the upcoming year, this is not farfetched. The only reason that the dollar is used for a benchmark is because it is tied to the price of oil and that may change this year. This is far far far from being over, even though it would be nice for an American like me.

[Jimi007]

I didn't see prices go down while the Baht was at a 13 year high against the dollar, so what's the big worry that the dollar gained almost a Baht back? When it was 42 Baht to a dollar, prices of things were less Baht then than now...

[bkkjames]

odd, one might think that if inflation is a concern, interest rates (and the baht) would go up? What do I know, I aint so phositicated financial analist

[thaihome]

odd, one might think that if inflation is a concern, interest rates (and the baht) would go up? What do I know, I aint so phositicated financial analist

Which is why the BOT has raised interest rates 4 times in the past 6 months, including just two weeks ago.

TH

[w11guy]

odd, one might think that if inflation is a concern, interest rates (and the baht) would go up? What do I know, I aint so phositicated financial analist

You are partly right that if interest rates go up then Baht should strengthen because more money flows in. But there is a massive outflow as foreign investors take the huge profits they've made over the last year or two. So they are selling the Baht and buying aother currencies. So this will push the Baht lower. It also depends what's happening with the other currencies. It's a very dynamic situation and not as strightforward as you suggest.

I would think that overthel onger term (next 10-30 years) that the Baht should strengthen. Europe, USA, etc are not going to grow as fast as Asia and other developing regions. But everything can change, so it's not set in stone, just a general trend. But there will always be ups and downs withing the longer trends.

[loong]

I can appreciate that a slide in the Baht will make oil more expensive in Baht terms and that will have a marginal effect on inflation.

But over the last few years that the Baht has been strengthening, I have seen no decrease in the price of imported goods, so a slight weakening of the Baht should have no effect there.

[Murf]

Isn't the name of this article a bit 'obvious'

Baht slide triggers inflation worries

How about;

Rainfall triggers wet road worries???

[loong]

I would also like to add that while the Baht was rising, inflation was terrible with basics. Rice doubled in price, Pork doubled. Eggs up about 50% and the list goes on.

[RaymondJeffreyKrapels]

odd, one might think that if inflation is a concern, interest rates (and the baht) would go up? What do I know, I aint so phositicated financial analist

You are partly right that if interest rates go up then Baht should strengthen because more money flows in. But there is a massive outflow as foreign investors take the huge profits they've made over the last year or two. So they are selling the Baht and buying aother currencies. So this will push the Baht lower. It also depends what's happening with the other currencies. It's a very dynamic situation and not as strightforward as you suggest.

I would think that overthel onger term (next 10-30 years) that the Baht should strengthen. Europe, USA, etc are not going to grow as fast as Asia and other developing regions. But everything can change, so it's not set in stone, just a general trend. But there will always be ups and downs withing the longer trends.

I think your long term forecast may prove to be accurate, Thailand as a whole is becoming more developed every day it seems, with a growing middle class population which are becoming exceedingly more used to the luxury life style that has eluded prior generations for so long, it is a given that prices will go up and subsequently wages as well. Thailand will no longer be competitive enough if it insists on using labour intensive production facilities. That being said, the weakening of the Thai Baht for the moment is good news for those labour intensive production facilities.

[ehs818]

The fact that prices and the overall cost of living did not decline during the last 3-4 years while the baht got stronger indicates to me that when it weakens exactly nothing will change either. The rich get richer and the poor continue to be disenfranchised and have no rights. My dollar got weaker and my cost of living went up more than 30%. Prices for rice and veges won't change that much because oil is still around $80-90 as it has been for the last 4-5 years. Worst case, bring back that ailig water buffalo. You know him, he's the one that is located on the pecking order, well above all farangs!

[TimTang]

Great! I just got a 1,333 Baht raise. Beers are on me.

[zaZa9]

odd, one might think that if inflation is a concern, interest rates (and the baht) would go up? What do I know, I aint so phositicated financial analist

You are partly right that if interest rates go up then Baht should strengthen because more money flows in. But there is a massive outflow as foreign investors take the huge profits they've made over the last year or two. So they are selling the Baht and buying aother currencies. So this will push the Baht lower. It also depends what's happening with the other currencies. It's a very dynamic situation and not as strightforward as you suggest.

I would think that overthel onger term (next 10-30 years) that the Baht should strengthen. Europe, USA, etc are not going to grow as fast as Asia and other developing regions. But everything can change, so it's not set in stone, just a general trend. But there will always be ups and downs withing the longer trends.

I think your long term forecast may prove to be accurate, Thailand as a whole is becoming more developed every day it seems, with a growing middle class population which are becoming exceedingly more used to the luxury life style that has eluded prior generations for so long, it is a given that prices will go up and subsequently wages as well. Thailand will no longer be competitive enough if it insists on using labour intensive production facilities. That being said, the weakening of the Thai Baht for the moment is good news for those labour intensive production facilities.

But surely it depends on the cost of the labour?

Cant more Burmese be shipped in by the Big Boys?

[slim]

There are few (if any) economists who think the USD will be weaker at the end of this year than stronger. The dollar is trading at historic lows against the AUD, NZD, Swiss France and Japanese Yen.

Should better and better news come out of the US over the next quarter or two (lower unemployment rate, better non-farm payrolls, stronger GDP etc) its inevitable the baht will weaken against the USD irrespective of what the BOT does.

Regrettably as a Brit I can see the exchange rate going in one direction for GBP/THB and thats down. More so in the case of the Euro.

As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance - non of which Thailand has. A retirement visa that used to cost me less than £12,000 now works out at nearly £18,000 and I have to have that money locked in a Thai bank for 3 months so I'd need in excess of £20,000 in effect.

This wouldn't be too bad with a rising exchange rate but its not rising - its falling with little long term prospect of change.

[hardy1943]

I didn't see prices go down while the Baht was at a 13 year high against the dollar, so what's the big worry that the dollar gained almost a Baht back? When it was 42 Baht to a dollar, prices of things were less Baht then than now...

It was hard for me to see the economy grow with the SUPER BAHT. Chinese are any thing but stupid and keep their currency devalued and a week dollar creates jobs and exports.

Edited January 26, 2011 by hardy1943

[Foggy Bottom]

....As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance - non of which Thailand has.

This wouldn't be too bad with a rising exchange rate but its not rising - its falling with little long term prospect of change.

Ditto - though I'm working, not retired - I'm out of here next week, wife and kids to follow as soon as I get a house sorted. Eleven and a half years here, but had enough of the nonsense and nationalistic prejudices (wife has too, and she's Thai).

[sscsamui]

Sweet.

Let it slide to 55.....

Ya i know i am dreaming...hahahaha......:}

[12DrinkMore]

Regrettably as a Brit I can see the exchange rate going in one direction for GBP/THB and thats down. More so in the case of the Euro.

As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance - non of which Thailand has. A retirement visa that used to cost me less than £12,000 now works out at nearly £18,000 and I have to have that money locked in a Thai bank for 3 months so I'd need in excess of £20,000 in effect.

This wouldn't be too bad with a rising exchange rate but its not rising - its falling with little long term prospect of change.

I am slightly more positive about the EUR for the moment. It looks like Asia and India are buying into EUR debt as an alternative to the USD, but who knows what is about to pop out of the woodwork next. But the visa does not "cost" you 18,000 Quid, you only have to show that money for three months, and during this time it will earn interest and has also gained against the GBP over the last couple of years as well.

[12DrinkMore]

I didn't see prices go down while the Baht was at a 13 year high against the dollar, so what's the big worry that the dollar gained almost a Baht back? When it was 42 Baht to a dollar, prices of things were less Baht then than now...

Yes, funny that, isn't it?

I was also expecting UK inflation to surge forward after the squib fell 25%, but it didn't.

There are strange forces at work in the financial world of smoke and mirrors.

[TimTang]

...As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance - non of which Thailand has. A retirement visa that used to cost me less than £12,000 now works out at nearly £18,000 and I have to have that money locked in a Thai bank for 3 months so I'd need in excess of £20,000 in effect...

Combine that with the fact that immigration is doing everything in their power to discourage foreigners from staying here, it's probably the best decision.

I just renewed my Non-O visa and I was treated as if I were some kind of dangerous criminal. I had to go back 4 times with additional documents that for some reason I never required before. I still have to go back for a 5th time to see if my application for extension has been accepted.

I'm not sure if I can handle going through this bull$hit for another year. Who knows what kind of ridiculous scenario they will dream up for next year.

Edited January 26, 2011 by TimTang

[elektrified]

Sweet.

It wasn't too long ago that KBank predicted Bath to go up to 26/$. I guess these expert used Monkey Theory

From everything I have been reading about the dollar and the upcoming year, this is not farfetched. The only reason that the dollar is used for a benchmark is because it is tied to the price of oil and that may change this year. This is far far far from being over, even though it would be nice for an American like me.

You have done your homework and are right about that, although oil trading in a currency other than the dollar is probably not going to happen this year.

Edited January 26, 2011 by elektrified

[sabai-dee-man]

Great! I just got a 1,333 Baht raise. Beers are on me.

Cool! Where can I find you tonight then, TimTang?!

[marquess]

I can appreciate that a slide in the Baht will make oil more expensive in Baht terms and that will have a marginal effect on inflation.

But over the last few years that the Baht has been strengthening, I have seen no decrease in the price of imported goods, so a slight weakening of the Baht should have no effect there.

With oil you never get the variable benefits but always the downside, so when the Baht strengthens you don't get a reduction in price, the powers that be everywhere can't ever have enough money. The trouble here is that they are kept less in check as there isn't enough questioning!

[SoftWater]

consider the UK has free schools, free hospitals, family allowance - non of which Thailand has.

I think you may have missed the boat on that one. Those are among the things the current UK gov't are trying to take out of the public purse in the name of 'austerity'. All the news coming out of Britain is that its going to be a very expensive and uncomfortable place to live for the next four years.

[oldsailor35]

....As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance - non of which Thailand has.

This wouldn't be too bad with a rising exchange rate but its not rising - its falling with little long term prospect of change.

Ditto - though I'm working, not retired - I'm out of here next week, wife and kids to follow as soon as I get a house sorted. Eleven and a half years here, but had enough of the nonsense and nationalistic prejudices (wife has too, and she's Thai).

IMO anybody who volunteers to live in England, needs his head read! The climate alone is enough to frighten one, and as for the new found population..........say no more !.................................................you'll be back .

Edited January 26, 2011 by oldsailor35

[dighambara]

Sign of a free market economy, when the money rolls in the locals cry.,

"How good we are."

When the money rolls out the locals cry.

''It's those nasty foreign investors taking THEIR money away that undermines our economy.

Relax those biased inane self protective laws, then foreign investment will be stable.

Till then capricious whims on the part of investors will control what passes for the Thai Economy.

Certainly, you ment those 'INSANE' self protective laws.

Foreigners can't buy land - what are we going to do - take it somewhere on a plane..??

It would seem more reasonable that the Bangkok snobs don't want any Nouveau Riche, former farmers joining the country club...

[Ulysses G.]

As a result after 7 years of living here I'm off back to the UK as I can't justify the expense of living here any more when you consider the UK has free schools, free hospitals, family allowance

Do you think those things will last for long in the current economic climate?

Edited January 26, 2011 by Ulysses G.