Baht's strength to remain sure but steady

“There is a sort of concern among external investors about some of comments being made, what that means for their investments and what that means for the currency,” Mackel said.
“The sort of concern for foreign investors really comes down to a holding period for bonds.”
The Bank of Thailand in cooperation with the Finance Ministry has made preparations to put in place four measures to calm the baht, including not allowing foreign investors to hold short-term bonds if the currency appreciates too much.
The baht is likely to end the year around 28.9 per US dollar, Mackel said. It is currently weakening somewhat after reaching its strongest level in 16 years over the past few weeks.
The Thai unit will converge with other Asian currencies such as the South Korean won, the Philippine peso and the Malaysian ringgit, he said.
Just a couple of months ago, the baht was strengthening out of sync with other Asian currencies, but now they are on the rise more even than they were a few weeks ago, he said.
He explained that the strengthening of the currency reflect investors’ optimistic views about the Thai economy. In previous periods, this phenomenon was seen in other countries, such as the Philippines last year. Lately the ringgit staged a significant rally after the general election resulting in the victory of the ruling party.
As a whole, Asian currencies will appreciate in tandem because of continual capital inflows to this promising region, Mackel said.
He does not expect capital outflows any time soon back to the United States and Europe because of unfavourable returns on investment.
Another factor is the continuation of quantitative easing or massive injections of liquidity in the US, Japan and Europe as they struggle to revive their weakened economies. These monetary policies have led to a spillover of liquidity into emerging markets.
He does not expect the Thai or any Asia government to take drastic measures to slow down capital inflows as these countries do not want to upset the market, only to calm it down.
He said some countries would take macro-prudential measures; for instance, China now is monitoring whether capital flows reflect flows of trade and investment.
Mackel noted that Thai exporters feared the impact of a strengthening baht on their business. Hedging is the standard solution, but it is only part of overall risk management. Risk also lies in the product they make and whether it is in demand by consumers, and whether they are exporting to growth markets.
Parson Singha, chief of market strategies for HSBC Thailand, said the bank expected Thai gross domestic product to expand by 6.8 per cent this year.
“We’re bullish about the Thai economy,” he said, pointing to robust domestic demand that will support growth.
The economies of trading partners such as China are expected to be better this year than last in 2012, he said. Meanwhile the US may not fully recover this year but it’s likely to improve.