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Thailand: KBank projects higher baht at year-end
Kasikornbank (KBank) has trimmed its forecast for the baht at the end of this year to 30.50 to the US dollar from 31, assuming the Federal Reserve will cut its policy rate twice during the rest of this year.
Should the Fed further ease monetary policy as expected, liquidity across the world will increase and Thailand, which is perceived as a safe haven to dump assets, is expected to be a destination for offshore fund inflows, said Kobsidthi Silpachai, head of capital markets research at KBank.
Foreign fund inflows are expected to shift to long-term local bonds after the Bank of Thailand imposed measures to curb hot-money inflows parked in short-dated notes.
The central bank started to rein in short-term offshore fund inflows by reducing the new short-term bond supply in July, aimed at curbing the baht’s gain. Efforts were then stepped up by lowering the cap on the outstanding balance of non-resident accounts from 300 million baht per person to 200 million baht and requiring a report with the names of end beneficiaries for all non-resident holdings of Thai debt securities.
The baht is the top-performing currency in Asia, up 6.1% against the US dollar since the beginning of the year to 30.66 yesterday.
He said foreign short-term bond holdings with less than one year until maturity has declined to 70 billion baht from 120 billion in June, suggesting the central bank’s measures lowered foreign fund flows into short-end bonds.
Foreign holdings in Thai long-dated bonds amounts to 876 billion baht.
Despite the potential of an influx of offshore fund flows into the Thai bond market, Mr Kobsidthi does not expect further monetary easing by the Bank of Thailand after a surprise 25-basis-point cut earlier this month to 1.50% from 1.75%, which was the first reduction since 2015.
“The central bank sending a signal about further rate cuts could be a double-edge sword. The move would attract foreign funds to switch into long-term bonds, which offer higher and faster profits than short-term ones, with supply of the latter restricted by the Bank of Thailand,” he said.
If foreign capital flows into long-term bonds, bonds yields and the government’s bond issuance plan could be affected, meaning the policymaker should refrain from using monetary policy because fiscal policy has a more powerful effect on the economy amid several headwinds, said Mr Kobsidthi.
Source: https://www.bangkokpost.com/business/1738607/kbank-projects-higher-baht-at-year-end