Thai analysis: Exporters' wish for a weaker baht unlikely to be fulfilled

[webfact]

ANALYSIS
Exporters' wish for a weaker baht unlikely to be fulfilled
ACHARA DEBOONME
THE NATION


A Thai vendor prepares fresh fish for sale at the Mahachai seafood market in Samut Sakhon.A potential ban of fishery products from Thailand by the European Union will worsen export revenue./EPA

BANGKOK: -- To the dismay of exporters, most economists are convinced that the Bank of Thailand will stay put when it meets on the policy rate this week.

In short, exporters will need to flex their muscles to boost sales, as the baht should stay at this level without a change in the policy rate, or could even appreciate further against the US dollar amid low oil prices.

Despite the government's pressure for further rate cuts to boost shipments, the biggest engine of the economy, the swelling current account surplus warrants no weakening of the baht in the short term.

The impact of a rate cut would be neutralised, while the central bank will have less ammunition to cope with possible global volatility and risks destabilising the country's financial strength.

Joey Chew, HSBC's Asia FX strategist, said last week that the baht has outperformed many other Asian currencies recently due mainly to the improvement in its current account surplus. Thailand's oil-trade deficit has also narrowed with the plunge in global oil prices, while tourism receipts have rebounded.

Moody's Investors Service expects oil prices in 2015-18 to average about 40 per cent lower than in 2011-14. This is a boon to oil-importing countries like Thailand, as its oil imports were about 12 per cent of gross domestic product (GDP) in 2013.

"Although the Bank of Thailand cut the policy rate earlier, the baht has been relatively unaffected since foreign equity and bond flows have been very muted over the past couple of years.

"Indeed, the absence of volatile capital flows is another reason for the baht's resilience, amid global financial market volatility," Chew said.

Most local economists believe that the Monetary Policy Committee would take no action, as it convenes for the third time this year on Wednesday. The central bank would rather wait for the release of official first-quarter economic indicators on May 18.

If the risk factors worsen, action can be taken at the fourth meeting in June.

New Zealand and Japan are also expected to maintain their monetary settings this week, pending more details on growth and inflation.

Moody's Analytics, the research arm of Moody's Investors Service, sees the central bank likely to keep rates on hold for the rest of this year. HSBC forecasts no change until early next year.

Though Thailand's exports contracted 4 per cent in the first two months of this year, low oil prices have fuelled the current account surplus, which would only strengthen the baht, not weaken it.

Thanks to lower oil prices and higher tourism receipts, the current account has been in surplus since last October. In December, the surplus hit an all-time high of US$5.15 billion. From 32.43 per dollar at end-September, the baht rose 0.3 per cent to 32.36 at end-February. It weakened in the first week after the rate cut in March, but later regained strength.

From $14.2 billion last year or 3.8 per cent of GDP, the International Monetary Fund expects a $17.2-billion surplus this year or 4.4 per cent.

HSBC's Chew said the baht's gains could slow in the second and third quarters, as some dividends paid by listed companies may leave the country, while the tourism industry will be entering the low season.

"Global factors may also play a role. We are seeing some signs of risk-taking in the market, which could favour other currencies with stronger growth and higher yields. In the second half, the dollar could strengthen once more, as the first rate hike nears. HSBC expects the Fed to raise the policy rate in September," he said.

Kobsidthi Silpachai, head of markets and economic research at Kasikornbank's capital markets business division, said cutting interest rates to influence the currency requires a diagnosis of whether interest rate differentials have resulted in speculative behaviour.

This can be seen through the level of foreign holdings of Bank of Thailand bonds.

"We view that cutting rates to weaken the baht would be effective when such positioning is high such as was the case in April 2013, when foreign positioning was about Bt300 billion. However, foreign positioning now is at Bt61 billion," he said.

Gundy Cahyadi of DBS Research said further rate cuts are often thought to be a way to weaken the baht, in order to boost export competitiveness.

"It is interesting to note, however, that the terms of the trade index has actually gone up by about 10 per cent alongside the 7-per-cent gain in the baht's real effective exchange rate (REER) in the past 12 months.

This is unlike in 2011-13, when the terms of trade fell by 3 per cent while the REER gained some 10 per cent," he said.

Tomorrow: Export sector needs restructuring

Source: http://www.nationmultimedia.com/business/Exporters-wish-for-a-weaker-baht-unlikely-to-be-<deleted>-30258803.html


-- The Nation 2015-04-27

[NongKhaiKid]

I'm no economist and always welcome input from those better qualified to explain but why when it would help exports is a de-valuation resisted ?

Is it just a matter of face, LoS can boast about having a strong Baht and to hell with the consequences ?

Edited April 26, 2015 by NongKhaiKid

[Chao Lao Beach]

Well, if you are in a position to influence it via monetry policy manipulation and your buddies all have aquired large finiancial gains "somehow" , it makes it cheaper when you get your money out of the country and buy big houses in those pesky Farlang countries.

[morrobay]

Well, if you are in a position to influence it via monetry policy manipulation and your buddies all have aquired large finiancial gains "somehow" , it makes it cheaper when you get your money out of the country and buy big houses in those pesky Farlang countries.

Right on. The only way we are going to get a weaker baht is when those above can gain from it : They reverse the strong baht monetary policy and cause the baht to go to 40/$ and simultaneously liquidate foreign assets and buy baht.

Edited April 27, 2015 by morrobay

[X pat]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

[monspencer]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

Let's hope so.

This BOT strategy of keeping the Baht strong has been going on for far too long.

[crazykopite]

Thailand will be in melt down by the end of the year it cannot sustain keeping a strong baht however it does benefit the very wealthy who use the exchange rates to increase there wealth !!

[tracker1]

I just recall the price of fuel going up and tourism going down ! maybe I am reading it all wrong

[Pinot]

I think all the farangs would love to see a weaker baht. I just don't see any reason for the Thais to do it. It's not a matter of boasting about the strong baht. It has everything to do with having a healthy economy.

I don't think the Thais want to see it go any higher. It is what it is and I'd be surprised to see any changes in policy.

[NCC1701A]

does Thailand have their version of a Securities Exchange Commission? Who over sees the stock markets and other exchanges?

I would love to be one of the people who have the insider information on the timing of the Baht devaluation.

[micmichd]

I'm no economist and always welcome input from those better qualified to explain but why when it would help exports is a de-valuation resisted ?

Is it just a matter of face, LoS can boast about having a strong Baht and to hell with the consequences ?

Imports (like oil) would get more expensive if THB would be depreciated.

[CrummyJuggler]

I'm no economist and always welcome input from those better qualified to explain but why when it would help exports is a de-valuation resisted ?

Is it just a matter of face, LoS can boast about having a strong Baht and to hell with the consequences ?

The answer is the fore-mentioned swelling account surplus. Exports (autos/fish), tourism, domestic consumption is greater than imports (oil). I'm simplifying of course. It's not broken so don't fix it. Devaluation would negatively impact rice farmers and families and government wants political stability. Status quo viewed as best option.

[Eric Loh]

Is the weak Baht the only reason why export is suffering? I say it's not the only reason except for a very few local produces. Most exporters variable costs like raw materials and equipments are imported and the strong Baht reduced their production costs. Even agriculture products used lots of imported fertilizers, pesticides and farm equipments that are imported. Is this a question of producers greed for more profits and big international/local companies that import the products are not lowering their prices proportionately to the local producers.

So really it's a question of the government inability to solve the local problems and the BOT really has not much influenced over the grand scheme of things. Government can do more to look into price gouging and implement schemes and benefits to help affected companies to lower the fixed costs like reviewing export taxes.

Also a question of poor coordination of government policies if they acknowledge strong Baht is the problem. For example, here we have the Finance Ministry officially asking and encouraging Laos, Cambodia, Mynmar and Vietnam to use Baht denominated Bonds for their infrastructure investment fundings. Laos have already mobilized 9.5B Baht and raise the Baht funding from Thailand capital market. This buying of Baht denominated bonds will raise Baht strength. Bottom line, this govenment is totally lost in all economic matters.

[robblok]

Just wishful thinking of expats.. sure I too hope for a weaker baht but I wont see it happen soon. Seems they just have an account surplus like Crummy Juggler suggests.

[Time Traveller]

I'm no economist and always welcome input from those better qualified to explain but why when it would help exports is a de-valuation resisted ?

Is it just a matter of face, LoS can boast about having a strong Baht and to hell with the consequences ?

The answer is the fore-mentioned swelling account surplus. Exports (autos/fish), tourism, domestic consumption is greater than imports (oil). I'm simplifying of course. It's not broken so don't fix it. Devaluation would negatively impact rice farmers and families and government wants political stability. Status quo viewed as best option.

Yes, as I've been saying for the last 4 or 5 months, its pretty much all about the Oil imports - paying less than they were paying last year leaves Thailand with a trade surplus.

But to answer the question, why they don't devalue is simple. It won't change the underlying reasons for the appreciation. That is, the trade surplus.

In such a situation, what a devaluation would mean is that the economy gets flooded with newly printed Baht and then you end up with inflation. So prices of everything go up. What little benefit exporters get from the weaker currency, every other Thai will pay the price for that through higher prices. Is that what you want?

[AlphMichaels]

The dollar remains strong and will for the next few months. Must remember that we live in a financial world that speculates..., often recklessly..., so these moves (or non-moves) by TH have little bearing in the near term because the baht is pegged (mostly) to the dollar.

So either way, we should see the baht devalue to the USD in coming weeks. I think it will get back to and hover around 33THB.

[Domenico Ernesto Esposito]

Actually the strong baht discourages tourism and expats. I live here in my wife's house, but we are planning to move in my house in Italy (where we can live a life more comfortable and cheaper than here) and stay there enjoying trips around Europe.

[rebelplatoon]

I can think of no other reason than still waiting for some army supplies. If not, just plain destructive not to devaluate RIGHT NOW.

[Mot Dang]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

I have been thinking this for years. How do they do it ? Will it come back and bite them. I was living in BKK during the last crash, it was a mess. Why hasn't it happened again ? Rubber and Palm Oil are very weak and Rice down. They have had a political upheaval and still nothing sticks. Thailand the Teflon economy. Really ? Like others I am not an economist, but I am still bewildered.

[Mot Dang]

I don't know one Thai who owns his/her car. Sure a fewer older cars are owned but the bank seems to own the rest. Thais (and I swear this is not Thai bashing), seem to save little, nor want too. All my younger extended family live for the day. Nothing gets saved. Big TVs stuffed into the typical small apartment for example. The latest cloths etc. Everything has be new and sparkling. If there is another crash it will be tragic I'm sure. And then the blame game will start.

[wow64]

I work for an international company here and thailand was used for the cheap labour and comparitive skilled labour here compared to other places in asian/india... Its now getting to the point where other markets are a lot more cheaper to get the same job done.

Not sure how much longer we will keep our opperation here. There is already talk of moving to India... Now with the strong baht its hard to argue..

Sent from my c64

[FredNL]

ANALYSIS
Exporters' wish for a weaker baht unlikely to be fulfilled

SO UNTRUE !!!

The international markets are in US Dollars, not in Thai Baht. I am in doing international business for over 30 years.

Only the European community uses their own currency within the Eurozone and when doing business with the UK they are using the Pound Sterling.

Everywhere in the world they are using the US Dollar. Or is Thailand now the world leader that they are using the Thai Baht for doing business???

The title must be:

Exporters wish a stable baht.

The Thai Baht has been very stable according to the US Dollar in the last 5 years. In April 2013 THB/USD was at the lowest at 28.61500 THB/USD.

So have export companies been calculating that the USD would weaken even more??? Plain stupid. Where was their margin ???

I have heard Thai (with Masters degree) say that if you have 100 products and you have 1% profit, you would make 100% profit. Yeah sure, on only on 1 product !!!

They don't have brains. And if they can find brains, they are in a calculator.

Link: http://www.xe.com/currencycharts/?from=USD&to=THB&view=10Y

[fred Kubasa]

Authorities say, while clutching nether region, " Export this " !

[Prbkk]

The most commonly used mechanism for trying to 'manage' exchange rates is the level of interest rates. In thailand interest rates are still quite high. Under Yingluck's govt the BOT did make a couple of cuts. The danger in cutting more is that in the absence of very tough rules for borrowing for things like property investment , cars and the like, the debt problem will worsen and the crazy housing frenzy and high levels of household debt will intensify.

It's a delicate balance but a weaker Baht should give a kick-start to exports.

Edited April 27, 2015 by Prbkk

[morrobay]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

Let's hope so.

This BOT strategy of keeping the Baht strong has been going on for far too long.

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

Well if its only about the quantity of foreign currency reserves that enables BOT to sustain a too high baht ( buying baht )

then unfortunately it looks like they can continue doing so for a long time.

If there are other economic factors that can prevent BOT from sustaining high baht then what are they ? Of course given that the almost 157 billion is correct.

Edited April 27, 2015 by morrobay

[NoshowJones]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

Not just this country, probably any country.

[Guest]

A long time ago, Albert Einstein got in an elevator, and one of the janitors from the building got in with him.

The janitor was very uncomfortable and stared at his feet.

Einstein said, "Lovely day, how are you?"

No reply.

Einstein, "Pardon me, but is there some problem, have I offended you?

Janitor, "Oh my! No Sir! On the contrary, I just have no idea what to say to the smartest man in the world ... I mean, what could we ever discuss and have any equal footing?"

Einstein, "That is easy my dear fellow, we could always speculate on the future direction of interest rates."

The answer to your question is resident within the article. Since 12% of Thailand’s GDP goes to oil, and oil is traded in (Petro) Dollars, being able to acquire those Dollars at a relatively low value help acquire the life blood of any modern economy … oil.

Secondly, Thailand has been on track (pun intended) for years to expand its internal infrastructure via rail, highway, airport and a more factory friendly (less flood prone) base. The nuts and bolts of those expansions are imported (just look at who really builds all the rail systems, for example.) A “strong’ baht makes the acquisition of infrastructure improvements less of a ‘debt strain” on the economy.

As for labor costs and exports, well … there is a Goldilocks effect in this …

A well managed financial system will be “not too cold, and “not too hot.”

Frankly, with full employment of the Thai people, not funding foreign wars, a robust agricultural and manufacturing base, a very high “happiness index’ and a currency that sailed through the last year’s international currency storm unscathed … frankly, America, the printers of the Almighty Dollar, could learn a thing or two about real debt / currency / growth management from the Kingdom.

Thailand is a vibrant and growing economy, and within ASEAN, on the “onward and upward’ flight path.

I am not sure you can say that about the USA … and to some degree .. the EU … right about now. If it was not for this rather amazing coincidence of dirt cheap oil … the American train wreck would have just hit the wall.
Lucky” they got all that cheap oil … really, really, “Lucky”

Thailand is just on the right side of the game this time, it is that simple.

The old saying is, “When the Elephants fight, the grass suffers”

But on the flip side, when the Elephants have to dig a hole and create a water hole, the smaller animals have the best of it.

Edited April 27, 2015 by Guest

[Lupatria]

ANALYSIS

Exporters' wish for a weaker baht unlikely to be fulfilled

SO UNTRUE !!!

The international markets are in US Dollars, not in Thai Baht. I am in doing international business for over 30 years.

Only the European community uses their own currency within the Eurozone and when doing business with the UK they are using the Pound Sterling.

Everywhere in the world they are using the US Dollar. Or is Thailand now the world leader that they are using the Thai Baht for doing business???

The title must be:

Exporters wish a stable baht.

The Thai Baht has been very stable according to the US Dollar in the last 5 years. In April 2013 THB/USD was at the lowest at 28.61500 THB/USD.

So have export companies been calculating that the USD would weaken even more??? Plain stupid. Where was their margin ???

I have heard Thai (with Masters degree) say that if you have 100 products and you have 1% profit, you would make 100% profit. Yeah sure, on only on 1 product !!!

They don't have brains. And if they can find brains, they are in a calculator.

Link: http://www.xe.com/currencycharts/?from=USD&to=THB&view=10Y

I have heard Thai (with Masters degree) say that if you have 100 products and you have 1% profit, you would make 100% profit. Yeah sure, on only on 1 product !!!

However, I’m sure he/she paid 100% in cash to his/her educator to get the degree!

[Lupatria]

Greed for lack of a better word seams to be what runs this country. Beleave me,it will come back to bite them in there pocket book.

Not just this country, probably any country.

Congrats! You just won in the competition: Best post of the day.

[micmichd]

I don't know one Thai who owns his/her car. Sure a fewer older cars are owned but the bank seems to own the rest. Thais (and I swear this is not Thai bashing), seem to save little, nor want too. All my younger extended family live for the day. Nothing gets saved. Big TVs stuffed into the typical small apartment for example. The latest cloths etc. Everything has be new and sparkling. If there is another crash it will be tragic I'm sure. And then the blame game will start.

Sorry, the crash already started. In EU Europe.

But ECB might succeed to make it a "normal" crisis, under the leadership of Angela Merkel and Mr. Draghi.

They simply "adjust" some taxes, cut down welfare a bit, and sell it to the sheeple as absolute necessary actions. Cut down civil rights a bit, like banning Russian motorbikers from joining the liberation anniversaries, and put the blame on Greece and Putin. And maybe, put the blame on Thailand.

Many Thais are not very good in saving, maybe.

You have to be considerably rich to be able to save money, and many Thais are not (yet) that rich. Sadly, the pawn shops take advantage of this.

Edited April 27, 2015 by micmichd