For foreigners to Thailand the value of the US dollar has reached a six year high at 34.92 against the Thai baht. This compares to an average bt 32.52 from 1981 until 2015.
Last Friday the 24th July the Thai baht closed at the lowest level against the US dollar in six years. However the drop of nearly 2% in a week does not seem to have phased authorities in Bangkok who see the decline of the baht in a more positive light. the all time high for the dollar against the baht was achieved in 1998 at Bt 55.50 while its lowest level was Bt 20.36 in 1981. So it has been a bit of a rollercoaster ride over the long term.
The Assistant Governor of the Bank of Thailand Chatavarn Sucharitakul admitted that the Thai baht was dropping ‘quite fast’. The 25 drop in the week was more dramatic than other Asian currencies which have also been dropping steadily. Many analysts point to the prospect of higher US interest rates and a movement of money from asia back to the United States.
Many analysts believe that the policy of quantitative easing pursued by the US Federal Reserve pumped money from the United States to other worldwide economies and that a lot of this money flowed into Asian economies which were seen as experiencing higher growth rates. That trend has been in reverse for some time and is gathering pace with increased economic confidence in the United States and the all important interest rate rise expected in September.
No irregular trading patterns targeting the Thai baht
M/s Sucharitakul echoed these sentiments when she told one Thai national newspaper: ‘The external factor is driven by market speculation that the US Federal Reserve will hike its policy interest rate within this year based on the Fed’s comments and recent positive US economic data while the price of gold has dropped below US$1,100 per ounce, which has led to increased demand for the precious metal and demand for the US dollar as well,’ she explained.
The Assistant Governor confirmed to reporters this week that the bank did not observe any irregular trading activity in markets relating to the Thai baht. This indicates that the fall is due to worldwide financial forces and perhaps a weakening of Asian economies including Thailands. The Asian financial crisis in 1997, which was such a disaster for the Thai economy, was triggered to some extent by predatory market trading against the Thai baht.
Kasikorn Bank predicts Thai baht 35.25 to the dollar by year’s end
What is interested in Thailand in the last few weeks has been the lower than expected drop in gold prices as the Thai baht has depreciated also. Some commentators believe that the weaker Thai baht will give a boost to Thai exports although the rate of the decline of the baht may yet prove troublesome if it causes inflationary pressures. The Bank of Thailand executive said that the bank would be keeping a ‘close watch’ on movement of the Thai currency. Kasikorn Bank, one of Thailand’s main banks has predicted that the Thai baht will reach B35.25 to the dollar towards the end of 2015.
Concerns regarding inflationary pressures and the purchasing power of Thai consumers was on the mind of Vallop Vitanakorn of the Thai National Shippers Council. Mr Thanakorn said that Thai importers will be faced with problems. He particularly pointed to the luxury goods sector which is an important part of Thailand’s retail economy. He was less concerned about the manufacturing economy which re exports products to world markets. There may also be implications for the large infrastructural and building projects as it may cause capital investment to be postponed.
Thai economic growth slowing down
In June the Thai Central Bank reduced its forecast for Thailand’s economic growth from 3.8% to 3%. One of the reasons was weaker than expected export growth in addition to a slackening of economic demand from the Chinese economy. In June the bank also pointed out that there had been a shift in the ‘global trade structure’ which meant that higher worldwide economic growth was less beneficial to Asian economies like Thailand. The bank also pointed to higher public expenditure than envisaged in Thailand.
Meanwhile other economists in Thailand are predicting that the Thai baht will fare a little better against the dollar in the medium term. An economist with Chartered Bank Usara Wilaipich expects that the Thai baht will strengthen after current worldwide events play out. Many commentators agree with this pointing out that Thailand is net creditor country with a trade surplus. Many point to the weakening of the price of gold and interest rates in Thailand as factors in the bahts decline. ‘It is like trying to kick a football up the hill; it will eventually roll down since you are kicking it up the slope without anything to provide upward momentum,’ said M/s Wilaipich. Commentators have also made the point that the drop in the baht may be a more effective economic stimulus for export growth than lower interests rates.
Money flowing from the East back to the West impacting Thai economy and Thai baht
However there has been a movement of funds from Asian stock markets to shares trading in the West particularly on Wall Street. The emerging instability of markets in China has added to the capital flight to the west in the last six months. The Thai Stock Exchange has dropped 3.3% since the beginning of 2015 and it is estimated that the capital outflow here alone is Bt 36 million with nearly Bt 20 million in July alone.
The Thai Commerce Minister Chatchai Sarikulya has pointed to the prospects for increased export growth from the baht’s decline and expects to see an export boost in the second half of this year. Meanwhile foreigners in Thailand may find there is more bang for their buck and this should also be good for tourism. The key thing to watch out for is an increase in retail prices.
