Central Bank Chief Cautions As Baht Gains Extra Strength

[GaryNelsonHarper]

Japan's monetary easing was the game changer eh? They haven't exactly been pushing any new financial frontiers lately now have they

...I seem to always notice a 1 baht difference between the daily exchanges rates and what the hotels claim are the daily exchange rates..

.The baht appears VERY strong at most hotels! Nearly 27 Baht to the dollar!

[Naam]

BOT reserves are $USD177,802,900,000 as at March 29,2013, down from USD$179,095,750,000 as at March 1, 2013. Net Baht reserves are also down.

goodness gracious! losing 0.7% of the reserves is horrible news Baht soon weakening? Thai economy falling into the abyss?

[thaiThai1970]

I currently support 2 step kids in Thailand. If it gets any worse then they will have to fend for themselves. After all, how did they get by before a 'Farang' came into their lives ? I was going back to Thailand for our holiday again next year but now I'm considering somewhere else to spend my hard earned cash

[Loptr]

To go back to the topic to some degree, I understand that this is worrying for people outside of Asia-Pacific however the THB has not moved significantly compared to the AUD and NZD or other Asian currencies except the JPY. Which is as expected: the EUR is down because the Eurozone have detonated their economy; the USD and JPY are down because they're printing money. The rest of the currencies don't move much. Bottom line: get out of currencies that are being destroyed by their governments, if you can...

Problem is that is nearly all of the currencies and countries. What amazes me is how bankrupt countries borrow from other bankrupt countries unless there is a whole slew of countries with lots of money to lend it is hard to see where all the money comes from from these countries with huge balance of payments deficits.

Seems to me another financial cliff drop is on the horizon because if it doesn;t seem to add up it probably doesn't. You can hide a lot with fractional reserve banking but eventually the mythical penny will drop.

It is a gigantic Ponsi scheme. When it does go over the cliff, there will be no where to hide. It is coming and it is only a matter of time.

I don't know who ever thought up the synthetic derivatives market, but they should be keel hauled, then drawn and quartered.

A lot of people discount Marc Faber as a doomsayer and his Gloom, Boom and Doom report as being bearish. I find his take on the world's economies to be enlightening if nothing else. Never hurts to have another perspective. BTW, Marc has a place in Chiang Mai as he sees the coming collapse also.

http://new.gloomboomdoom.com/portalgbd/homegbd.cfm

"The problems we face today are there because the people who work hard for a living are now vastly outnumbered by those who vote for a living."

Edited April 10, 2013 by Loptr

[webfact]

UPDATE:
Relentless baht raises worries
Business REporters
The Nation

Fears over impact on export, tourism as currency hits post-1997 high for 3rd day in a row

BANGKOK: -- Thailand's export and tourism sectors are bracing for tough times in light of the baht's strong rally against the US dollar, while authorities are brainstorming for the best policy options.

The Thai National Shippers Council said it would soon need to lower its export-growth target for this year to only 5.5 per cent from 7.5 per cent because of the rapid strengthening of the baht and the government's tardiness in drafting a strategy to help the export sector, which contributes 70 per cent to the country's gross domestic product (GDP).

Vallop Vitanakorn, a vice chairman of the Thai National Shippers Council, said government agencies had no new plan to promote exports, but only wanted to drive shipments to Asean and new markets. However, Asean markets rely on imports of semi-finished goods and raw materials, so Thai shipments to Asean would not increase as much as the government had expected.

In the tourism sector, the Association of Domestic Travel said some local tour operators had been troubled slightly because they earn income in US dollars. Tourism operators are watching the baht's rise closely and have expressed concern that if the current trend continues, the industry may feel a bigger pinch. Thailand's visitor arrivals crossed the 22.3-million mark for the first time last year and the number is expected to increase to 24.5 million this year.

The Tourism Authority of Thailand said there was no sign yet of the appreciating baht taking a toll on the industry.

Yesterday, Prime Minister Yingluck Shinawatra directly asked the Bank of Thailand to monitor the skyrocketing baht very closely while the central bank said it had several control measures up its sleeve.

"The prime minister expressed concern for those affected, particularly SMEs [small and medium enterprises] in industries that may be hurt. Appropriate relief measures may be introduced if necessary," BOT Governor Prasarn Trairatvorakul said after a meeting of economic agencies.

Last week, Prasarn said, the BOT asked financial institutions that act as a custodian of foreign investors' securities for lists of those investors. This could help the central bank to improve its evaluation of the whole situation. The central bank has also asked banks to assist SMEs by offering advice and extending loans.

Amid the zooming baht, the BOT is also tracking capital inflows in terms of categories and trading patterns.

In intraday trade yesterday, the baht touched 28.88 per US dollar, its highest in 16 years. The baht has hit a new high for three consecutive days. With a 5.4-per-cent gain so far this year, it has been the best performing among 11 Asian currencies. Year to date, searching for higher returns in emerging markets, global funds have bought Thai bonds worth US$10 billion or Bt300 billion. Their bond holding accounts for nearly 20 per cent, compared to 2 per cent before the sub-prime crisis in 2008.

reduce external debt

Areepong Bhoocha-oom, permanent secretary at the Finance Ministry, said the BOT and the ministry would join hands to keep tabs on capital inflows and inform state agencies and state enterprises not to borrow offshore for their projects.

Any state unit with external borrowings will be asked to reduce its external debt and state units are being asked to accelerate foreign loan disbursements.

State units show foreign-currency expenditure of about Bt100 billion. To boost investment in other countries, the ministry discussed with the central bank about relaxing regulations to facilitate overseas investment.

The inflow of foreign capital was not a cause for concern, as most of the money went into government bonds.

For now, it is not necessary to employ capital control measures, as used in the past, as doing so could trigger panic and international investors could lose their confidence in the country, he added.

Currency appreciation is commonplace and does not apply only to Thailand, said Chantavan Sucharitkul, an assistant BOT governor. The baht gained 2.5 per cent in a month, while Iceland's currency strengthened by 6.7 per cent, Mexico's peso by 4 per cent and Malaysia's ringgit by 2.6 per cent, she said.

-- The Nation 2013-04-11

[personchester]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

I doubt very much whether the spending power of retired farangs' money is ever considered by anyone - other than farangs, of course.

And when inflation takes off, the only thought of Immigration will be to put the monetary requirement up.

I also doubt that attracting foreigners to live here is a consideration. They want tourists, not retirees. We are tolerated, not desired.

Your first "para" is wrong,

Your second "para" is possible.

Your third "para" is correct.

[Guest]

I currently support 2 step kids in Thailand. If it gets any worse then they will have to fend for themselves. After all, how did they get by before a 'Farang' came into their lives ? I was going back to Thailand for our holiday again next year but now I'm considering somewhere else to spend my hard earned cash

Yes, obviously a 3 - 6 % change in the exchange rate would be a perfectly logical reason to abandon your responsibilities and find better uses for your "hard earned cash.' Just out of curiosity what will replace that frivolous and silly expense?

[Time Traveller]

All very well but they do not take this into consideration when Farangs on retirement /extension still have to produce income of 65,000 baht per month or 800,000 in the savings account if it gets any worse I envisage a lot of expats looking elsewhere other than Thailand

If you had of invested in the Thai stock market 10 or 12 years ago, you wouldn't need to be counting your pennies now.

I remember at the time everyone had such a negative opinion on thai investments. They usually said something about don't invest in thailand more than you can lose - or some variation of that - and now those same people are complaining about their weak foreign money. Oh well there's safety in crowds, even if you are wrong!

Oh yes, 20/20 Hind Sight is a great thing

It's not hindsight, it's called insight into the stupidity of popular opinion. Now everyone is believing American and European economies are doomed and Asia has best prospects and markets are priced to reflect that. From an investment perspective, you might find that those markets that are shunned will offer better returns in the future compared to markets where everyone is currently expecting to grow fast.

The reality is prices can move quite a lot over time and it's not very sensible to have your expenses in a different currency (let's say baht) to your source income (dollars/euros/pounds/yen/whatever) and then expect the rate to stay like that forever.

[yoshiwara]

to think of all the english expats thats thousands across the country living on the pound that is transfered over turned into baht i have seen a drop in english people driving there cars they dont eat out as much as they are on a tight bugit and yes many are retired 65 years old many have sold there english homes to be able to live in thailand . i my self feel the pinch . PLEASE BUDDA GIVE US MORE BAHT FOR OUR POUND.

so we can live a normal life again amen.

These things happen. It happened to British expats retired to France and Spain who went in when the pound was 1.40 to the Euro. The 'unfairness' is most keenly felt by those who are most risk averse ie savings in cash or near cash and not offsetting currency exchange movements.

[MANFROMBOCA]

Thai currency risk is a serious issue. If you stay in Thailand
the real value of your domestic positions could decline considerably.

Also, I wouldn’t be so sure that the Thai bhat does not
appreciate further. Purchasing power parity (PPP) suggests that the Thai bhat
is about 33% undervalued (i.e. Bhat should appreciate to about 20 per USD
Dollar). For example, a good proxy is the cost of a McDonald’s Big Mac.
Purchasing power parity states that the price of a goods and services (i.e. Big
Mac) must be the same, after exchange rate adjustment, in two different
countries. In 2012, the cost of a U.S. big mac was about $4.20. In Thailand,
the same Big Mac Cost only 78bhat (or $2.46 in dollars given exchange rates at
the time). In the long-term this price difference cannot exist, as the law of
one price requires these two goods to have the same price on a currency
adjusted basis. In order to equate the two goods, the Bhat shoudl depreciate to
about 18.57 per dollar (i.e. 78bhat/$4.2dollars = 18.57 bhat to
dollar) to resolve this discrepancy. While this may take time, there is clearly
significant room for further appreciation in the Bhat (see these links:
http://bigmacindex.org/2012-big-mac-index.html and http://bigmacindex.org/2012-big-mac-index.html).
The IMF (International Monetary Fund) places the PPP exchanged rate at about
this 18-19. level.

In the short-run, however, I could see the Thai government
intervening as further appreciation in the Bhat will hamper export growth in
Thailand.

[reflectionx]

Thai currency risk is a serious issue. If you stay in Thailand

the real value of your domestic positions could decline considerably.

Also, I wouldn’t be so sure that the Thai bhat does not

appreciate further. Purchasing power parity (PPP) suggests that the Thai bhat

is about 33% undervalued (i.e. Bhat should appreciate to about 20 per USD

Dollar). For example, a good proxy is the cost of a McDonald’s Big Mac.

Purchasing power parity states that the price of a goods and services (i.e. Big

Mac) must be the same, after exchange rate adjustment, in two different

countries. In 2012, the cost of a U.S. big mac was about $4.20. In Thailand,

the same Big Mac Cost only 78bhat (or $2.46 in dollars given exchange rates at

the time). In the long-term this price difference cannot exist, as the law of

one price requires these two goods to have the same price on a currency

adjusted basis. In order to equate the two goods, the Bhat shoudl depreciate to

about 18.57 per dollar (i.e. 78bhat/$4.2dollars = 18.57 bhat to

dollar) to resolve this discrepancy. While this may take time, there is clearly

significant room for further appreciation in the Bhat (see these links:

http://bigmacindex.org/2012-big-mac-index.html and http://bigmacindex.org/2012-big-mac-index.html).

The IMF (International Monetary Fund) places the PPP exchanged rate at about

this 18-19. level.

In the short-run, however, I could see the Thai government

intervening as further appreciation in the Bhat will hamper export growth in

Thailand.

Are you being sarcastic with this Big Mac theory? I hope that you are not making investment decisions based on a price of a hamburger !!!

Edited April 11, 2013 by reflectionx

[Time Traveller]

Thai currency risk is a serious issue. If you stay in Thailand

the real value of your domestic positions could decline considerably.

Also, I wouldn’t be so sure that the Thai bhat does not

appreciate further. Purchasing power parity (PPP) suggests that the Thai bhat

is about 33% undervalued (i.e. Bhat should appreciate to about 20 per USD

Dollar). For example, a good proxy is the cost of a McDonald’s Big Mac.

Purchasing power parity states that the price of a goods and services (i.e. Big

Mac) must be the same, after exchange rate adjustment, in two different

countries. In 2012, the cost of a U.S. big mac was about $4.20. In Thailand,

the same Big Mac Cost only 78bhat (or $2.46 in dollars given exchange rates at

the time). In the long-term this price difference cannot exist, as the law of

one price requires these two goods to have the same price on a currency

adjusted basis. In order to equate the two goods, the Bhat shoudl depreciate to

about 18.57 per dollar (i.e. 78bhat/$4.2dollars = 18.57 bhat to

dollar) to resolve this discrepancy. While this may take time, there is clearly

significant room for further appreciation in the Bhat (see these links:

http://bigmacindex.org/2012-big-mac-index.html and http://bigmacindex.org/2012-big-mac-index.html).

The IMF (International Monetary Fund) places the PPP exchanged rate at about

this 18-19. level.

In the short-run, however, I could see the Thai government

intervening as further appreciation in the Bhat will hamper export growth in

Thailand.

so according to your reasoning, Thailand does not need to worry since they can start exporting Big Macs!

[MANFROMBOCA]

its not my reasoning its how the IMF forcasts long term currency appreciation and depreciation, take it or leave it FYI only its simple (to most of us ) economics

[wolf5370]

Thai currency risk is a serious issue. If you stay in Thailand

the real value of your domestic positions could decline considerably.

Also, I wouldn’t be so sure that the Thai bhat does not

appreciate further. Purchasing power parity (PPP) suggests that the Thai bhat

is about 33% undervalued (i.e. Bhat should appreciate to about 20 per USD

Dollar). For example, a good proxy is the cost of a McDonald’s Big Mac.

Purchasing power parity states that the price of a goods and services (i.e. Big

Mac) must be the same, after exchange rate adjustment, in two different

countries. In 2012, the cost of a U.S. big mac was about $4.20. In Thailand,

the same Big Mac Cost only 78bhat (or $2.46 in dollars given exchange rates at

the time). In the long-term this price difference cannot exist, as the law of

one price requires these two goods to have the same price on a currency

adjusted basis. In order to equate the two goods, the Bhat shoudl depreciate to

about 18.57 per dollar (i.e. 78bhat/$4.2dollars = 18.57 bhat to

dollar) to resolve this discrepancy. While this may take time, there is clearly

significant room for further appreciation in the Bhat (see these links:

http://bigmacindex.org/2012-big-mac-index.html and http://bigmacindex.org/2012-big-mac-index.html).

The IMF (International Monetary Fund) places the PPP exchanged rate at about

this 18-19. level.

In the short-run, however, I could see the Thai government

intervening as further appreciation in the Bhat will hamper export growth in

Thailand.

There is a real difference between Big Mac in the US and in Thailand - here (Thailand) they are not daily staple, so need to have lower prices to compete with local alternatives, which is not true in the States. Using food is a hard sale here simply because the staples, what is considered luxury foods and the average earning of individuals is so different. If we took rice we may find the opposite is true - or certainly if we took cooked foods (like Big Mac is) and said Thai Papaya Salad (pok pok / som tum) or Pad Prik Gaeng Talay.

Exchange rate movements are always a good thing and a bad thing depending on your perspective (depending on whether your income is local or international) - as Thailand is mostly an exporting nation, then it stands to reason that higher exchange rates are going to be more painful (and thus not a good thing).

This is compounded by the fact that a sizeable (small compared to exports, but I covered that already!) income is tourist based, and again high exchange rates means less money being spent in the country (this is not even considering the impact on tourist numbers too - just assumes the same number of people come with the same amount of spending money in their own local currencies/travellers' cheques etc).

Thirdly, this means Thai wages in real terms are higher when being considered from an offshore perspective (i.e. labour in Japanese factories based in Thailand is more expensive when considered in Yen even without pay rises) and lets face it, it is mostly the reason these factories are here .

I also wonder as to the "power" people here - who most likely hide their money over seas and are seeing losses both in interest and in bringing it back. For now they are probably biding their time and hoping for a turn around (or keeping the money outside to be used for foreign investment instead perhaps).Of course we know some at least store wads of cellophane wrapped notes in their bedrooms (for thieves to borrow from).

Just my thoughts with respect to Thailand.

[yoshiwara]

its not my reasoning its how the IMF forcasts long term currency appreciation and depreciation, take it or leave it FYI only its simple (to most of us ) economics

The IMF use a number of indicators and PPP is only one of them. The Economist Magazine Big Mac Index is purely a partly-humourous finger in the wind indicator of trends. PPP itself is a tricky area as a typical shopping basket in one country varies from another. So as far as your 'analysis' is concerned I think we will leave it.

[a99az]

Her World shopping trip is getting more costly

Why is she paid in € and ₤

[55Jay]

To go back to the topic to some degree, I understand that this is worrying for people outside of Asia-Pacific however the THB has not moved significantly compared to the AUD and NZD or other Asian currencies except the JPY. Which is as expected: the EUR is down because the Eurozone have detonated their economy; the USD and JPY are down because they're printing money. The rest of the currencies don't move much. Bottom line: get out of currencies that are being destroyed by their governments, if you can...

Problem is that is nearly all of the currencies and countries. What amazes me is how bankrupt countries borrow from other bankrupt countries unless there is a whole slew of countries with lots of money to lend it is hard to see where all the money comes from from these countries with huge balance of payments deficits.

Seems to me another financial cliff drop is on the horizon because if it doesn;t seem to add up it probably doesn't. You can hide a lot with fractional reserve banking but eventually the mythical penny will drop.

It is a gigantic Ponsi scheme. When it does go over the cliff, there will be no where to hide. It is coming and it is only a matter of time.

I don't know who ever thought up the synthetic derivatives market, but they should be keel hauled, then drawn and quartered.

A lot of people discount Marc Faber as a doomsayer and his Gloom, Boom and Doom report as being bearish. I find his take on the world's economies to be enlightening if nothing else. Never hurts to have another perspective. BTW, Marc has a place in Chiang Mai as he sees the coming collapse also.

http://new.gloomboomdoom.com/portalgbd/homegbd.cfm

"The problems we face today are there because the people who work hard for a living are now vastly outnumbered by those who vote for a living."

Dr. Faber, like a lot of folks, may like Chiang Mai but I doubt that relates to it being a safe haven when the US and the dollar crash. Next road sign May 2013 ~ next debt ceiling increase.

[yoshiwara]

To go back to the topic to some degree, I understand that this is worrying for people outside of Asia-Pacific however the THB has not moved significantly compared to the AUD and NZD or other Asian currencies except the JPY. Which is as expected: the EUR is down because the Eurozone have detonated their economy; the USD and JPY are down because they're printing money. The rest of the currencies don't move much. Bottom line: get out of currencies that are being destroyed by their governments, if you can...

Problem is that is nearly all of the currencies and countries. What amazes me is how bankrupt countries borrow from other bankrupt countries unless there is a whole slew of countries with lots of money to lend it is hard to see where all the money comes from from these countries with huge balance of payments deficits.

Seems to me another financial cliff drop is on the horizon because if it doesn;t seem to add up it probably doesn't. You can hide a lot with fractional reserve banking but eventually the mythical penny will drop.

It is a gigantic Ponsi scheme. When it does go over the cliff, there will be no where to hide. It is coming and it is only a matter of time.

I don't know who ever thought up the synthetic derivatives market, but they should be keel hauled, then drawn and quartered.

A lot of people discount Marc Faber as a doomsayer and his Gloom, Boom and Doom report as being bearish. I find his take on the world's economies to be enlightening if nothing else. Never hurts to have another perspective. BTW, Marc has a place in Chiang Mai as he sees the coming collapse also.

http://new.gloomboomdoom.com/portalgbd/homegbd.cfm

"The problems we face today are there because the people who work hard for a living are now vastly outnumbered by those who vote for a living."

Put together the words 'synthetic' and 'derivatives' and some people's heads explode with the sheer indignity of non-understanding. And then all the bits fly out: Ponzi, its only a matter of time and all the other nothingness.