Thailand: Baht rally ‘short term’
The baht’s further upside bias to the US$34-mark is seen as a short-term run on the back of persistent offshore fund inflows, largely to the Thai bond market, prompted by a perception that the local currency is a safe haven, says a senior official at Phatra Securities.
The firmer baht is setting a trend as foreign investors are returning to the Thai debt market following fund repatriation to the US ahead of the Fed’s rate hike in mid- March, said Pipat Luengnaruemitchai, assistant managing director of Phatra Securities.
“It is possible the baht could strengthen to 34 to the dollar, but it is hard to forecast exactly where will it end up,” he said.
Mr Pipat said the pace of baht appreciation is stronger than its peers in the region because it is considered a safe haven currency based on massive foreign reserves.
He believes the Bank of Thailand has been stepping into the foreign exchange market since the baht hovered just above 35 to the dollar.
The US dollar has weakened against other currencies since the Federal Reserve’s signal of a less hawkish tone on future rate hikes at its meeting in mid-March. The trend continued following President Donald Trump’s failure to win support for a healthcare bill, which was considered his first test in delivering on his campaign promises.
The baht is one of Asia’s top-performing currencies, rising 1.5% in March. It has gained almost 4% against the greenback this year.
The baht has been the strongest Asean currency in March. Singapore’s dollar rose 0.7% against the US dollar this month, Malaysia’s ringgit advanced 0.5%, the Philippine’s peso edged up 0.3% and the Indonesian rupiah rose 0.2%. The local currency dipped to 34.41 yesterday after hitting a 20-month high of 34.30 in the previous session.
Somchai Sujjapongse, permanent secretary for finance, recently said the strengthening baht is in line with economic fundamentals and no intervention by the central bank is needed. He did caution the baht should move in a relative range to its peers in the region.
However, the narrowing gap of interest rates between Thailand and the US will reverse the baht’s strengthening trend later this year, said Mr Pipat.
If the Fed raises its policy rates three times this year as widely expected, capital outflows from emerging markets including Thailand are expected, but the effect on the baht would not be substantial given its high current account surplus, he said. Phatra Securities forecasts the baht will retreat to 35 to the dollar at the end of this year.
“We expect the Bank of Thailand will stand pat on its policy rate throughout this year,” said Mr Pipat.
He said if the Thai economy fares worse than expected, the baht could be softer regardless of a steady interest rate or even a rate reduction.
“I believe the Bank of Thailand will not be in a rush to raise its rate. A rate hike could happen at year-end at the earliest, but it would be more likely in 2018,” said Mr Pipat.
The brokerage house is projecting Thai economic growth of 3.2% both this year and next.