The Thai baht may trade at 30 to the dollar early next year, said one of Thailand’s largest banks on Wednesday.
Tak Bunnag, head of global markets at the Bank of Ayudhya, predicts that the baht will appreciate to 31.25 per dollar by the end of this year, from levels a shade below 32 at the time of writing, and will reach the symbolic 30 level within the first quarter of 2019.
Like all emerging markets, Thailand has suffered massive capital outflows in recent months as the gap between US and local yields has widened. As capital has left the country, the baht has depreciated; although, with a 2 percent gain over the greenback year-to-date, it remains one of this year’s best FX performers.
The baht will steady itself and will climb again once yield differentials begin narrowing, thinks Tak, but this will first require the Bank of Thailand to raise interest rates to counter ongoing policy normalization at the US Federal Reserve.
Most analysts are fairly certain that the Bank of Thailand will tighten policy before the year is out – any rate hike would be the first since 2011 – thereby aligning itself with a growing group of emerging market central banks that are tightening policy to tackle problems associated with higher US rates, a stronger dollar and oil-driven inflation. The central banks of Indonesia, the Philippines, Argentina and Turkey hiked interest rates in May – in some cases, multiple times – and speculation surrounds the upcoming decisions of the banks of Mexico, Brazil, India and the like.
Not all in Thailand would be happy should the baht march towards 30 to the dollar – a rate last seen in 2013. Double-figure baht appreciation over the past two years has resulted in Thai exporters losing competitiveness, especially in light of the baht’s significant outperformance of other regional currencies, and several influential groups have already called for the government to provide relief measures for troubled exporters.
A caveat to near-term baht appreciation was offered by ING last week.
“The baht will likely experience volatile movements mainly due to uncertainties pertaining to the conduct of monetary and fiscal policies in advanced economies as well as geopolitical risks and oil prices,” said the bank’s Asia economist, Prakash Sakpal.