Warning from CIMB Thai: Baht 'could come under severe pressure'

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WARNING FROM CIMB THAI
Baht 'could come under severe pressure'
SUCHEERA PINIJPARAKARN
SARUN KIJVASIN
THE NATION

BANGKOK: -- CONTINUING political unrest set to culminate in next week's "Bangkok shutdown" campaign by opponents of the government is adding to pressure on the baht, which amid other factors could weaken to 34 against the US dollar if there are violent clashes.

Sutee Losoponkul, first executive vice president of CIMB Thai Bank and head of its treasury group, said yesterday that the bank saw no immediate prospect for large capital inflows, and the baht was unlikely to regain strength before the political situation is resolved.

But even if the immediate political conflict is calmed down, until there is assurance that the previously planned infrastructure mega-projects will get back on track, the economy will not be on a firm growth path. This is despite the fact that Thailand remains a good place to invest in terms of strong economic fundamentals and strategic location, Sutee said.

CIMB Thai expects the baht this year to average 33.5-33.6 against the greenback but could hit 34 if the US Federal Reserve ends its bond-purchasing programme. And that 34 mark could arrive much more suddenly if riots erupt on Monday, he said.

He also noted that the weaker baht was not yet having much effect in terms of fuelling an export recovery. Meanwhile foreign tourists are starting to take their vacations elsewhere, fearing violence in Thailand, adding another unwanted blow to the baht.

CIMB Thai warns traders to pay serious attention to foreign-currency forward contracts to mitigate risk.

"It is not only Thailand that is facing currency depreciation, neighbouring countries such as Malaysia are also. Therefore, gaining margins from the baht's depreciation is not the right solution for exporters. They should think seriously about hedging tools and focus on improving operational efficiency to compete with traders in neighbouring countries," Sutee said.

Meanwhile HSBC Global Research says in its "Asian FX Focus 2014" outlook that the house is cautious on the baht on a number of fronts, both domestic and external.

Last year Thailand's forex cover fell to its lowest level since 2006. While the ratio was still higher than others in Asia, and the Bank of Thailand is ready and able to intervene to reduce foreign-exchange volatility, the weak growth outlook may curb efforts to contain baht weakness. Indeed, the central bank could cut the policy rate again in light of slower growth potential and political pressures, the house said.

Sentiment is likely to remain cautious going into the February 2 election, it said, which the main opposition party is boycotting. While political headwinds are not new for the baht, they are now having a larger impact on the currency. The Fed's tapering of its quantitative easing programme has also made foreign investors more selective, and Thailand's narrower current-account deficit has meant that capital flows are having a larger direct impact on the baht than in the past.

Roong Mallikamas, BOT director of macroeconomic policy, said the baht's depreciation encouraged importers to increase their forex-hedging volumes.

In November alone, importers' hedging volumes increased to 27 per cent from 17 per cent in October, while hedging activities by exporters in November increased to 34 per cent, from 30 per cent the previous month, she noted. Yet, trend of hedging by exporters is lower than the average volumes of 30-40 per cent.

"We expect the trend of baht depreciation will make hedging attractive to importers because currency volatility is [a major] risk for trading businesses."


-- The Nation 2014-01-11

[terryp]

thats the best news i have heard for about 10 years I might start looking for the new car then///and start going out more with the extra pension money....so its not all bad...exports will rise also

[tullynagardy]

To think this time last year this board was full of blokes promising 30 baht to the £ was on its way

[Thailand]

To think this time last year this board was full of blokes promising 30 baht to the £ was on its way

There you go. The whistle blowing nutjob- the expats best buddy!

[NongKhaiKid]

These folks are really on the ball, I thought the Baht was already under pressure and recently hit its lowest against the US$.

Another ' wise after the event ' routine.

[fish fingers]

I dont think the demonstrations are going to make the baht much weaker imo. Its been quite steady for a couple of weeks. I expect the baht to get slightly stronger afterwards(as long as the rice farmers get paid) but I think the current rate is an indication of less confidence as a whole.

Edited January 11, 2014 by fish fingers

[justaphase]

I wouldn't buy a new car. Not with Thailand importing 90% of their fuel. See how much the petrol prices go up. And if petrol goes up, everything goes up. A dollar a litre is a dollar a litre anywhere..

[phitsanulokjohn]

Quiet similar to a post I wrote yesterday http://www.thaivisa.com/forum/topic/695240-is-now-a-good-time-to-bring-some-gbp-over/?p=7270599

[Chao Lao Beach]

To think this time last year this board was full of blokes promising 30 baht to the £ was on its way

There you go. The whistle blowing nutjob- the expats best buddy!

Not is sending money abroad......

[Robby nz]

But even if the immediate political conflict is calmed down, until there is assurance that the previously planned infrastructure mega-projects will get back on track, the economy will not be on a firm growth path. This is despite the fact that Thailand remains a good place to invest in terms of strong economic fundamentals and strategic location, Sutee said.

One of the problems is that PT was relying entirely on the 2.2 trillion to stimulate the economy and had no other plans.

Now it looks likely to be dumped by the courts, then there is nothing.

"It is not only Thailand that is facing currency depreciation, neighbouring countries such as Malaysia are also. Therefore, gaining margins from the baht's depreciation is not the right solution for exporters. They should think seriously about hedging tools and focus on improving operational efficiency to compete with traders in neighbouring countries," Sutee said.

That cant be right, they don't have protests.

[trainman34014]

The smart ones among us will not be spending any more than we usually do as we know it's a cycle where currencies are concerned. Keep the extra for the inevitable rainy day.

[jacko45k]

I wouldn't buy a new car. Not with Thailand importing 90% of their fuel. See how much the petrol prices go up. And if petrol goes up, everything goes up. A dollar a litre is a dollar a litre anywhere..

A diesel one then........ it has been 29.999999999999 for quite a while now.

[steelepulse]

I wouldn't buy a new car. Not with Thailand importing 90% of their fuel. See how much the petrol prices go up. And if petrol goes up, everything goes up. A dollar a litre is a dollar a litre anywhere..

A diesel one then........ it has been 29.999999999999 for quite a while now.

It's been 30.43 in Phuket for ages.

[LivinLOS]

I wouldn't buy a new car. Not with Thailand importing 90% of their fuel. See how much the petrol prices go up. And if petrol goes up, everything goes up. A dollar a litre is a dollar a litre anywhere..

A diesel one then........ it has been 29.999999999999 for quite a while now.

It's been 30.43 in Phuket for ages.

Thats the FAT..

Farang Added Tax

[DMG333]

Market fluctuations, if it is going down, it must come up someday:) ......... Hopefully

[noitom]

thats the best news i have heard for about 10 years I might start looking for the new car then///and start going out more with the extra pension money....so its not all bad...exports will rise also

Good for tourism too. The prices for "everything" will be better when quoted in baht.

[Gsxrnz]

thats the best news i have heard for about 10 years I might start looking for the new car then///and start going out more with the extra pension money....so its not all bad...exports will rise also

Good for tourism too. The prices for "everything" will be better when quoted in baht.

Hmmm.....Thais aren't as green as they're cabbage looking.

Overheard the two owners of a restaurant discussing the weakening Baht and a decision to increase their menu prices by 10%.

I've noticed some very large increases in prices in Jomtien and Pattaya over the last 3 months. The smart ones get new menus printed. The cheap Charlie's put a sticker over the original price which makes it a bit obvious.

[little mary sunshine]

How about 48-50..I'll enjoy single malt in stead of blended scotch...555555555555

[circusman]

I dont think the demonstrations are going to make the baht much weaker imo. Its been quite steady for a couple of weeks. I expect the baht to get slightly stronger afterwards(as long as the rice farmers get paid) but I think the current rate is an indication of less confidence as a whole.

Steady you say ? Just the opposite bloke.

[Bender]

as the unemployemnt rate fell in USA, so it will be no surprise if again FED taper 10 bilions $ more on the 29 january...

and within next weeks the baht will certainly skrink more.

[Benmart]

Some may cheer the weakening Baht, but those of us living here, may well feel the backlash in the form of raising prices.

For every action, there is a reaction. I prefer to save my applause over the weakening Baht until I see what effects it has on the cost of living and the quality of life.

[Thai at Heart]

as the unemployemnt rate fell in USA, so it will be no surprise if again FED taper 10 bilions $ more on the 29 january...

and within next weeks the baht will certainly skrink more.

Exactly.

The tapering of the Feds stimulus is doing this. The protests aren't helping but that is not the biggest effect.

I don't get all the stress. Ptp begged for a weaker baht 6 months ago to boost exports. Well here you are. Now get on with it, but get your story straight when fuel and other inputs and consumer prices take off.

Very stupid short term solution. Let's devalue our way to wealth??????? Duh.

[BillyBobThai]

42-42-42 all we want is 42-42-42

[I knew this would happen]

The weakening Baht hurts (finacially) me and the protests too, nothing to cheer for me

[Naam]

The weakening Baht hurts (finacially) me and the protests too, nothing to cheer for me

I knew this would happen

[I knew this would happen]

Yeah actually i knew this would happen, because when one thing is for sure then this: Thailand cannot exist with at least one major crisis per year. But there´s always sunshine after the rain.

I´m just tired of the "hooorrray Thailand is falling apart choir"

Edited January 11, 2014 by I knew this would happen

[citizen33]

Very stupid short term solution. Let's devalue our way to wealth??????? Duh.

This argument rings a bit hollow for those who remember getting 70+ baht to the GBP!

[tullynagardy]

Guys please note that most of the weakening is so far down to capital movements out of emerging markets because the Fed is scaling back printing money in the US.

The full effects of the protests havn`t been felt yet. If things get ugly on Monday expect a 10% drop further.

[Thai at Heart]

Very stupid short term solution. Let's devalue our way to wealth??????? Duh.

This argument rings a bit hollow for those who remember getting 70+ baht to the GBP!

I am talking from the thai business/country perspective across the whole, not just exporters.

I remember a time when a policy decided to deliberately devalue a currency normally cost a government its job. Seems not anymore.

Edited January 11, 2014 by Thai at Heart

[SailingHome]

A 3% move from 33. What am I missing? Is that considered large in currency trading?