Monday, March 30, 2020

Baht keeps strength despite coronavirus outbreak, economic decline

Feb 19. 2020
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By The Nation

The Thai economy in 2020 would expand at a much lower rate than previous forecast and way below its full potential, mainly due to the combined impact from the coronavirus outbreak, delay to enactment of the Annual Budget Expenditure Act and drought on a large number of businesses and employment, according to the minutes released today by the Monetary Policy Committee of the Bank of Thailand .

 On February 5 ,  the committee  voted unanimously to cut the policy rate by 0.25 percentage point from 1.25 to 1.00 per cent, in a bid to shore up the economy.

   Regarding exchange rates, the committee said although the Thai baht depreciated somewhat in recent days , it remained potentially inconsistent with economic fundamentals. During  inter-meeting period, the currency depreciated against the US dollar. The baht also depreciated against regional currencies as reflected by a decline in nominal effective exchange rate (NEER) despite its high level compared with that in the past. The recent  depreciation was mainly a result of  investors’ concerns over the softening outlook of  the Thai economy,  from both domestic and external prespectives , as well as the Bank of Thailand’s relaxation of foreign exchange regulations to facilitate capital outflows. 

   Investors started to view that the baht could depreciate after a substantial appreciation last year, the report said. 

   Meanwhile, a divergence in the trends of the baht and the prices of gold, a safe-haven asset, was more prominent amid the  coronavirus outbreak ,  reflecting a diminishing safe-haven status of baht-denominated assets from the investors’ perspective, according the central bank.

   In an interview, Kobsidthi Silpachai, head of capital markets research at Kasikornbank told the Nation that the baht is currently 5.6 per cent overvalued.

   While the country would have lower current account surplus this year, it still remains high, he said. Kasikornbank has lowered its projection of current account surplus to US$33 billion this year, down from the previous forecast of $33.8 billion, he said.

   He said imports was  still falling faster than exports, resulting in a continuous  surplus of the current account, the  main factor behind the baht's appreciation.

    The weighted- average interbank exchange rate was Bt 31.187  per dollar  at the close of trade on February 19, according to the central bank.

   Many research houses have revised downward their economic growth forecast to below 2 per cent rate this year.

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