Hot baht to stay on uptrend as exporters reel

The baht has appreciated nearly 7 per cent against the US dollar since the beginning of this year, hurting the competitiveness of Thai exporters in world markets, among other. consequences.

Korbsak Phutrakul, executive vice president of Bangkok Bank, said: “The strong baht is now a big challenge for Thai policy-makers and exporters. The unit has strengthened from 32 per dollar in the middle of last year to a 16-year high of 28.50 per dollar recently.

“Within such a time frame, the gains of over Bt3 per dollar are huge. From January to March this year, the baht was the only big gainer in the region. It’s unusual because regional currencies mostly move in tandem when compared with the dollar.

“In April, the baht’s movement has become more consistent with other regional units as the Chinese yuan and Malaysian ringgit, among other currencies, also have gained. The baht’s gains of 6-7 per cent are too much for Thai exporters to stay competitive.

“Foreign funds in the Thai bond market also have pushed up the baht, especially inflation-protected bonds, totalling more than Bt200 billion since the start of this year. Foreign investors have taken advantage of Thailand’s higher interest rates when compared with other countries. Previously, Korea’s bonds were also very popular. Now, it’s Bangkok bonds.

“The baht is now a favourite in the eyes of foreign investors as well as speculators who have spotted blood in the ocean. Exporters panicked when the unit breached 30 or, more recently, 29 per dollar, prompting them to close positions, resulting in more gains for the baht.

“Based on our international reserves, there has been little or no intervention in the foreign-exchange market to smooth the rise of baht, so I am not surprised by its rapid rise. I think we have failed to intervene adequately in the early stage.

“The Japanese quantitative-easing policy is another major factor, as the yen has been depreciating rapidly with massive liquidity being pumped into its financial system. Over the next two years, Japanese monetary authorities could inject liquidity to double the monetary base, and this would have implications on other Asian economies, including Thailand.

“The Asean Economic Community has strong growth prospects, especially against the backdrop of the euro-zone economic crisis, the slow US recovery etc. In the long run, the baht and other Asian units will remain on the uptrend.

“If the baht is the only champion of gainers, it’s manageable, but when the whole region’s units are gaining, it’s not possible to go against the uptrend.

“Two months ago, someone asked if the baht would breach 28 per dollar, and I said I wouldn’t be surprised. Now, if asked if it would breach 27 per dollar, my answer is the same. Given this uptrend, it’s more important to prepare to live with it.”

Saranya Phuphatana, head of capital markets at TMB Bank, said: “A significant increase in foreign funds entering Thailand has contributed to the baht’s appreciation. Last year, we attracted about Bt290 billion in foreign funds into the bond market. This year, in January alone the inflow was nearly Bt80 billion, compared with an outflow in Malaysia for example. Thai fundamentals appear to be strong, leading to larger foreign-fund inflows.

“However, there is another big concern, the so-called Japanese quantitative-easing measure, which has started to affect Thailand. Japanese insurance giants, for example, have started to invest abroad to get a higher return on their funds, and Thailand is one of their destinations.

“The Japanese can gain both from higher returns on Thai bond investments as well as on the favourable exchange rate, as the yen is being driven down by pressures from the massive QE or money-printing measure, falling from 77 not long ago to the current range of nearly 100 per dollar.”