Of the four countries that share borders with Myanmar, Thailand is the second largest trading partner, with trade volumes during fiscal 2018-19 amounting to US$3.8 billion, according to government data. 

Just this month, the Central Bank of Myanmar and Bank of Thailand signed a memorandum of understanding to promote the use of the kyat and baht for trading at the border, according to an October 21 statement issued by the Bank of Thailand. 

As such, the appreciation of the baht could have an impact on Myanmar traders and consumers by making imports more expensive.

The dearer exchange rate would also come at a time when the kyat has been largely stable at an average of K1522 per dollar this year. But analysts say if the trade deficit widens as a result of more expensive imports, the local currency could further depreciate.

“We still expect the Myanmar kyat to remain under pressure from a persistent current account deficit which is expected to widen from 5.3 percent of GDP in 2018 to 5.7pc in 2019 and 5.9pc in 2020,” said Heng Koon How, head of markets strategy at Singapore’s UOB Global Economics and Market Research.

Heng forecasts that the kyat may weaken to K1550 per dollar by the second half of 2020.

The Thai baht has been strengthening because it is well supported by a strong current account surplus of around 5 percent of GDP. The baht is also seen as a regional safe haven currency and Thailand’s anchor role as a financial center for the Greater Mekong region, said Heng.

Nevertheless, the Bank of Thailand has also signaled its concern over the baht’s strength and has eased monetary policy with a 25 bps cut in August from 1.75pc to 1.50pc. That, combined with further easing from the US Federal Reserve, could mute excessive weakness in the kyat.

“We believe there are limits to the baht’s strength going forward and we see the currency easing modestly to 31.2 by the first half of 2020,” said Heng.

Source: https://www.mmtimes.com/news/strong-thai-baht-could-impact-imports-currency.html