Baht expected to stay 34/$ for now
THE WEAKER baht is helpful to Thai exporters but the slowdown in global demand remains a problem, and the woes in the euro zone surrounding the Greek debt crisis will worsen this factor, said Supant Mongkolsuthree, chairman of the Federation of Thai Indus
The baht has sunk to its weakest level in six years as the escalation of Greece debt crisis has triggered a flight to safe-haven assets, which has contributed to the strengthening of the US dollar. The baht closed at 34.004 per dollar yesterday.
“The Greek debt situation has [contributed to] depreciation of the baht but global demand is still low. The uncertainty over a ‘Grexit’ means that the demand from European Union and other countries will continue to be weak as |people are still waiting to see whether the EU will be able to cope with their latest financial trouble,” he said.
Supant said an exchange rate around Bt34 per US dollar would provide a good balance between export and investment, as exporters can sell more product while investors are not too bothered by a depreciation of around 1-2 per cent.
He expects the baht to remain in the 34-35 range as he believes that the dollar will strengthen towards the end of the year.
Pongtharin Sapayanon, head of fixed income at Aberdeen Asset Management, said the escalation of Greece’s debt situation had contributed to the strengthening of the US dollar, and that was the main reason the baht depreciated yesterday. Domestic factors such as the Bank of Thailand’s monetary policy were secondary.
“The BOT is using the policy interest rate and the exchange rate as tools to create traction for growth, since the wheels are spinning but the economic expansion is still not going where it was expected to be,” he said.
The baht deprecated in the second quarter more than Aberdeen had expected, but it still maintains its forecast that it will be in the 34-34.5 region by the end of the year.
Factors behind depreciation
Tim Leelahaphan, Thailand economist at Maybank Kim Eng Securities, said the consecutive cuts in the policy rate in the first half of the year and the central bank’s earlier move to relax foreign-exchange regulations were still contributing to the deprecation of the baht. Meanwhile the flow of funds to safe havens initiated by the Greek debt situation has contributed to the strengthening of the US dollar and the Japanese yen.
“Global [fretting] caused by Greece and the bleak outlook of China’s capital market yesterday [gave more impetus to] the flow to safe havens that has been going on since Monday,” he said.
He expects the baht to weaken to around 34.5 by the end of this quarter or when the US Federal Reserve raises its key interest rate in September.
He said the baht should strengthen towards the end of the year to 34 as Thailand enjoys a tangible recovery in the fourth quarter.
