Thailand: Analysts sound alarm on baht depreciation

Economists are warning the baht will weaken further throughout this month because of higher volatility in money and capital markets worldwide after the US Federal Reserve’s hawkish benchmark interest rate hike.

Krungthai Compass, a research house under Krungthai Bank, forecasts the baht will dip to high-34 to mid-35 against the US dollar by the end of this month.

The baht depreciation is attributed to higher volatility of the global equity markets and digital assets, said Phacharaphot Nuntramas, chief economist of the research centre.

The Fed raised its benchmark interest rates by 75 basis points on June 15.

However, the baht is expected to stabilise after June for 3-6 months, then strengthen late this year.

A firmer baht to the greenback late this year would be supported by an improving current account, contributed from higher tourism income, said Krungthai Compass.

For the first half of 2022, foreign travellers should number around 1 million, before soaring to 5 million in the second half, said the research house.

“We expect foreign arrivals to contribute income of 50,000-60,000 baht each, making the country’s tourism income roughly 300 billion baht this year,” Mr Phacharaphot said.

In this scenario, Krungthai Compass assesses the baht would be firmer, above 35 to the dollar at the end of this year.

The Economic Intelligence Center (EIC), a research unit of Siam Commercial Bank, predicts the baht will continue to weaken to 34.5-35.5 to the dollar in the short term because of foreign capital outflows after the Fed increased its policy rate aggressively.

However, Thailand’s tourism sector is expected to see a strong rebound in the second half this year and support the country’s current account, as well as the baht, said the EIC.

The research centre estimates the baht will strengthen to 33.5-34.5 to the dollar at the end of this year.

The stronger baht would be supported by a Thai economic recovery and the country’s current account would resume to a surplus position, said the EIC.

For the first half this year, Thailand’s current account is expected to remain in deficit.

The EIC predicts the Fed will continue to increase its benchmark policy rate aggressively throughout the remainder of this year.

The Fed is expected to increase its policy rate by 75 basis points at its July meeting and 50 basis points in September, said the research house.

In November and December, the Fed Funds Rate is expected to increase another quarter-point per meeting, pushing the rate to a range of 3.25-3.5% at the end of this year, the EIC said in a report.