BOT urges hedging against currency risk

[webfact]

BOT urges hedging against currency risk
By WICHIT CHAITRONG 
THE NATION

 

Veerathai urges exporters to hedge against volatility in the value of the baht.

 

BANGKOK: -- BANK OF THAILAND governor Veerathai Santiprabhob yesterday urged exporters to hedge against volatility in the value of the baht as the country faced the prospect of trade protectionism against the backdrop of tensions on the Korean Peninsula – with “unpredictable” outcomes from the latter.

 

“Geopolitical risk and trade protectionism are external risks factors that could lead to high volatility in the exchange rate,” Veerathai said.

 

His comments follow a period of gains in the baht, confounding market assumptions that the currency would weaken against the US dollar. Market bets since last year been for the greenback to strengthen against the major currencies this year in line with the US Federal Reserve’s policy goal of raising interest rates to more normal levels.

 

“But the market has lower confidence in US President Donald Trump after he failed to push through key policies such as repealing Barack Obama’s healthcare legislation, and so we have seen the US dollar weakening,” said Veerathai, referring to the Republican Party’s failure to overturn the former president’s healthcare policy in Congress.

 

 “Geopolitical risk is also playing a role as US and North Korean leaders engage in a face-off over Pyongyang’s nuclear programme. We don’t know who will blink first - Trump or Kim Jong-un.”

 

The Bank of Thailand has conducted a study on currency hedging, with the central bank revealing that most small and medium-sized exporters have shunned this prudential measure. 

 

Suchot Piamchol, deputy director of the foreign exchange division, said 72 per cent of small exporters canvassed in the BOT study had done nothing to protect themselves from exchange rate volatility. Some 59 per cent of medium-sized exporters and 50 per cent of large exporters did not hedge.

 

Dangers in acting too late

 

On average, 66 per cent of all exporters did not make any hedging arrangements and only 4 per cent of them had fully hedged against currency risk.

 

 “Many exporters hedge against baht volatility when the baht swings suddenly and that hedging at such times can make the situation even worse,” Suchot said.

 

He said some exporters may not need to fully hedge against currency moves if they are engaged in both exporting and importing.

 

 An effective hedging strategy will reduce risk from exchange rate movements, especially during times of high volalility that could result in losses, said Suchot, who felt many exporters were not sufficiently aware of the risks. This was especially so for those exporters who were overconfident in taking on risk, based on their assumptions over the exchange rate. He said the purchase of options of forwards may have their costs but should be considered.

 

Veerathai, when asked about the prospect of central bank taking additional measures to curb the baht rally, said there could be more on the way, but added that central bank cannot move against market forces. 

 

The central bank recently reduced the amount of short-term bond issuance in order to deter investors from parking their short-term funds in the Thai financial market; this action helped fuel the baht’s gains.

 

Quizzed on the move’s effectiveness, Veerathai put forward a counterfactual argument: “The question should be, what would happen if we don’t do it.”

 

“Among the regional currencies, the baht has been strengthening moderately within this group. It is really a problem of the US dollar weakening,” he said.

 

This year the baht has strengthened 4.2 per cent, while the Taiwan dollar, Korean won and Indonesia rupiah have risen 6.1 per cent , 5.9 per cent and 5.1 per cent, respectively. The Chinese yuan has added only 0.8 per cent. 

 

Veerathai played down any concerns that a stronger baht would hurt the tourism industry.

 

However, Kobsithi Silapachai, head of capital markets research at Kasikornbank, said he was concerned that the stronger baht could discourage Chinese tourists, in particular, from visiting.

 

The central bank acknowledges that it has to do more to encourage Thai investors to invest more aboard in order to balance the capital flows. 

 

Foreign investors see the baht as the save haven in the region due to Thailand’s large international reserves and its current account surplus. Short-term inflows could exacerbate the baht’s rally and potentially hurt Thai exporters as their goods become relatively more expensive.

 

Source: http://www.nationmultimedia.com/news/business/EconomyAndTourism/30312729

 

-- © Copyright The Nation 2017-04-20

[fruitman]

37 minutes ago, webfact said:

Veerathai played down any concerns that a stronger baht would hurt the tourism industry.

 

[simoh1490]

15 minutes ago, fruitman said:

 

Tourism numbers weren't affected when the Baht went to 29, that being the case, 33.5 shouldn't be a problem.

[fruitman]

2 hours ago, simoh1490 said:

Tourism numbers weren't affected when the Baht went to 29, that being the case, 33.5 shouldn't be a problem.

Numbers haven't changed but the tourists all started to look chinese haven't you noticed?

 

It seems Thailand gave up with the european tourists, the baht is far too strong to get them since those people are worldwise and just go elsewhere.

[simoh1490]

2 minutes ago, fruitman said:

Numbers haven't changed but the tourists all started to look chinese haven't you noticed?

 

It seems Thailand gave up with the european tourists, the baht is far too strong to get them since those people are worldwise and just go elsewhere.

I'm aligned with a tourist related business, you can take it from me there are plenty of European tourists in Thailand currently.

[fruitman]

5 minutes ago, simoh1490 said:

I'm aligned with a tourist related business, you can take it from me there are plenty of European tourists in Thailand currently.

So where are those farang tourists hiding then? 

[simoh1490]

2 hours ago, fruitman said:

So where are those farang tourists hiding then? 

There's plenty in the North and Central provinces, I guess a walk around the centre of the cities of Chiang Rai and Chiang Mai should confirm that.

[gandalf12]

It was 25 Baht to the USD when I first came to Thailand and no it didn't do any harm but at the time everything was a lot cheaper. Now it would do harm as the cost of living has increased significantly since my first trip to Thailand.

If they are going to make comparisons they should at least consider all the factors.

[Srikcir]

17 hours ago, webfact said:

66 per cent of all exporters did not make any hedging arrangements and only 4 per cent of them had fully hedged against currency risk

Incredibly shortsighted when 70% of GDP is from exports.

[anon4546543]

51 minutes ago, Srikcir said:

Incredibly shortsighted when 70% of GDP is from exports.

I hope medium and large Thai companies and investors take note. Fluctuations are likely to be more extreme. Especially when the Trump administration moves away from solving domestic economics to solving foreign affairs policies by more and more threats. Not conducive to stability.  

[wakeupplease]

Large international reserves?

 

Whats on paper and whats in private accounts do not add up when poo shows up wait and see

[anon4546543]

2 minutes ago, wakeupplease said:

Large international reserves?

 

Whats on paper and whats in private accounts do not add up when poo shows up wait and see

And against all international cited information, documented world bank information, you have proof otherwise? You may be old, you may be bitter and maybe your young bit did run off, but that is no reason to continually try to run down an entire country and its people. Show your proof to the otherwise. If you actually live in Thailand which I doubt, it is time to go back home. If you do not live in Thailand you are just another loser, born to hate and scorn.

[wakeupplease]

1 minute ago, spiderorchid said:

And against all international cited information, documented world bank information, you have proof otherwise? You may be old, you may be bitter and maybe your young bit did run off, but that is no reason to continually try to run down an entire country and its people. Show your proof to the otherwise. If you actually live in Thailand which I doubt, it is time to go back home. If you do not live in Thailand you are just another loser, born to hate and scorn.

60 million are just like myself and welcome at my dinner table anytime the others just rip of what was a lovely nation who now are suffering, if you cannot see what millions are saying you need specsavers. You are right I no longer live in a country I could never be free in as if I want to read and share its illegal and books being banned now who was the most evil person in History who started that (Hitler), view the film Book Thief (if its not been banned like so many others that tell the truth) and you may learn. Tonight I can sleep and not fear a knock on the door from the CCA squad, but you cannot.

 

You Said

you are just another loser, born to hate and scorn

 

I guess in saying that you are uptight and just had nothing else constructive to say, but you are entitle to your opinion which I respect.

[simoh1490]

We get it, you don't like the governement. But that's no reason to make up stories about misappropriation of the foreign currency reserves, perhaps give it a rest and move on since people aren't much interested in economic fairy tales!

[oldhippy]

3 hours ago, Srikcir said:

Incredibly shortsighted when 70% of GDP is from exports.

Are you saying that Thailand exports 70% of its GDP?

 

[speedtripler]

5 hours ago, spiderorchid said:

And against all international cited information, documented world bank information, you have proof otherwise? You may be old, you may be bitter and maybe your young bit did run off, but that is no reason to continually try to run down an entire country and its people. Show your proof to the otherwise. If you actually live in Thailand which I doubt, it is time to go back home. If you do not live in Thailand you are just another loser, born to hate and scorn.

 

Just because he can't prove it doesn't make him wrong... 

 

Most countries thesedays are deeper in the red than they would care to admit  publicly (especially the western ones we all come + Japan and China) 

[Srikcir]

5 hours ago, oldhippy said:

Are you saying that Thailand exports 70% of its GDP?

 

No.

Exports generate revenues that contribute to the GDP.

http://www.investopedia.com/terms/g/gdp.asp

[DrTuner]

Volatility due to Korean situation? More likely due to BOT stopping meddling with the market.

[simoh1490]

7 minutes ago, DrTuner said:

Volatility due to Korean situation? More likely due to BOT stopping meddling with the market.

Show us where they have done that and how.