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[ 2015-07-24 ]
Baht plunges 'quite fast' to six-year low against US dollar
The continued strength of the US dollar and the weak gold price have led to the baht depreciating to a six-year low, trading at Bt34.84 to the greenback yesterday.
Chantavarn Sucharitakul, the Bank of Thailand's assistant governor for Financial Markets Operations Group, admitted that the baht is dropping "quite fast", losing about 2 per cent against the dollar this week.
This is faster than the depreciation of other currencies in the region, which have depreciated 0.3-1.5 per cent.
"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.
In addition, there are concerns that Thailand's economic performance could be hit by the ongoing drought and the delay in the government's investment projects.
Such an outlook has prompted analysts to lower the country's gross domestic product forecast for this year, with second-half growth to be less than the first half.
Chantavarn said the BOT has not seen any irregularity in the forex markets with relation to the baht.
"The weakening of the baht is needed to support the economic recovery but too rapid a deprecation would make it difficult for the private sector to adapt so the BOT is keeping a close watch," she said.
According to Kasikornbank, the baht is projected to drop below Bt35 to the dollar in the fourth quarter of this year, trading within the target of Bt35.25.
Vallop Vitanakorn, vice chairman of the Thai National Shippers Council, said the weakening baht has benefited the export sector, but importers will be negatively affected, especially those importing consumer and luxury goods.
Kasikornbank said in a report that Thai authorities had acknowledged that the use of the exchange rate during this time is more effective than cutting interest rates to buoy the flagging economy.
Vallop said imported raw materials, which will be re-exported, would not be affected significantly as it can be offset by foreign exchange income.
However, imports of machinery or capital goods may also be delayed to avoid a higher cost due to the baht's weakness, but long-term projects should not be affected.
Commerce Minister Chatchai Sarikulya said the baht's weakness should boost export growth in the second half of the year after facing a contraction in the first six months with June shipments estimated to be down 6-7 per cent year on year.
Exports in the first half of the year dropped about 5 per cent compared to the same period last year.
Charl Kengchon, managing director of Kasikorn Research Centre, said the US dollar has been supported by recent positive economic numbers, which had led to the deprecation of currencies in the Southeast Asia region, including the Thai baht.
"The market expects the US Federal Reserve to hike the US interest rate in September, which has led to the strengthening of the US dollar and the depreciation of the baht, which is a common factor for the region, while the drop in the price of gold has led people to buy gold. This has led to the baht depreciating even further since gold deals would require US dollars as the currency for transaction," he said.
"The capital outflow from Thailand's stock markets is also contributing to the weakening of the baht," he added.
While the baht dropped to a six-year low yesterday, gold prices are now at a five-year low, trading at $1091 on July 22.
The Stock Exchange of Thailand Index has dropped by 3.33 per cent from the beginning of the year, with capital outflow of Bt35.82 billion to date, including about Bt20 billion this month.
Tim Leelahaphan, Maybank Kim Eng Securities (Thailand) economist and assistant vice president of its Research Department said the firm still expects the baht to be around Bt34.50 per US dollar by the end of the third quarter.
"Short-term factors from foreign speculation and the strengthening of the US dollar might push the baht to go beyond Bt35 per dollar," he added.
Prinn Panitchpakdi, country head at CLSA Securities (Thailand), said the baht might go past Bt35 per US dollar as cash is flowing back to the US.
"CLSA expect the baht to be at Bt35-Bt35.5 by the end of the year but it can swing between Bt33.8-Bt35.5 in the next 5-6 months from the US rate hike and the expected improvement of Thailand's economy next year," he said.
This is faster than the depreciation of other currencies in the region, which have depreciated 0.3-1.5 per cent.
"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.
In addition, there are concerns that Thailand's economic performance could be hit by the ongoing drought and the delay in the government's investment projects.
Such an outlook has prompted analysts to lower the country's gross domestic product forecast for this year, with second-half growth to be less than the first half.
Chantavarn said the BOT has not seen any irregularity in the forex markets with relation to the baht.
"The weakening of the baht is needed to support the economic recovery but too rapid a deprecation would make it difficult for the private sector to adapt so the BOT is keeping a close watch," she said.
According to Kasikornbank, the baht is projected to drop below Bt35 to the dollar in the fourth quarter of this year, trading within the target of Bt35.25.
Vallop Vitanakorn, vice chairman of the Thai National Shippers Council, said the weakening baht has benefited the export sector, but importers will be negatively affected, especially those importing consumer and luxury goods.
Kasikornbank said in a report that Thai authorities had acknowledged that the use of the exchange rate during this time is more effective than cutting interest rates to buoy the flagging economy.
Vallop said imported raw materials, which will be re-exported, would not be affected significantly as it can be offset by foreign exchange income.
However, imports of machinery or capital goods may also be delayed to avoid a higher cost due to the baht's weakness, but long-term projects should not be affected.
Commerce Minister Chatchai Sarikulya said the baht's weakness should boost export growth in the second half of the year after facing a contraction in the first six months with June shipments estimated to be down 6-7 per cent year on year.
Exports in the first half of the year dropped about 5 per cent compared to the same period last year.
Charl Kengchon, managing director of Kasikorn Research Centre, said the US dollar has been supported by recent positive economic numbers, which had led to the deprecation of currencies in the Southeast Asia region, including the Thai baht.
"The market expects the US Federal Reserve to hike the US interest rate in September, which has led to the strengthening of the US dollar and the depreciation of the baht, which is a common factor for the region, while the drop in the price of gold has led people to buy gold. This has led to the baht depreciating even further since gold deals would require US dollars as the currency for transaction," he said.
"The capital outflow from Thailand's stock markets is also contributing to the weakening of the baht," he added.
While the baht dropped to a six-year low yesterday, gold prices are now at a five-year low, trading at $1091 on July 22.
The Stock Exchange of Thailand Index has dropped by 3.33 per cent from the beginning of the year, with capital outflow of Bt35.82 billion to date, including about Bt20 billion this month.
Tim Leelahaphan, Maybank Kim Eng Securities (Thailand) economist and assistant vice president of its Research Department said the firm still expects the baht to be around Bt34.50 per US dollar by the end of the third quarter.
"Short-term factors from foreign speculation and the strengthening of the US dollar might push the baht to go beyond Bt35 per dollar," he added.
Prinn Panitchpakdi, country head at CLSA Securities (Thailand), said the baht might go past Bt35 per US dollar as cash is flowing back to the US.
"CLSA expect the baht to be at Bt35-Bt35.5 by the end of the year but it can swing between Bt33.8-Bt35.5 in the next 5-6 months from the US rate hike and the expected improvement of Thailand's economy next year," he said.
The Nation July 24, 2015 1:00 am
Author: Patrick Lusted