Thread: Thai Baht May Keep Weakening

Thai Central Bank Signals Hands-Off Stance Toward Currency Slump

• Baht moves in line with peers, market expectations, BOT says
• BOT intervention limited to easing excessive volatility

By Suttinee Yuvejwattana (Bloomberg)

July 8, 2022 at 1:25 PM GMT+7

Thailand’s central bank pledged to allow the nation’s currency to be driven by market forces after the baht slumped to a six-year low, damping speculation it may hike rates soon to stem the slide and quell the fastest inflation in 14 years.


The monetary authority will limit its intervention to tackling any excessive volatility as it pursues no target or direction for baht against the dollar, Bank of Thailand’s Senior Director Daranee Saeju told reporters at a briefing in Bangkok on Friday.

The baht’s slide reflects the nation’s economic fundamentals as well as market expectations of a current-account deficit and future rate increases by the US Federal Reserve, Daranee said. Thailand’s $221 billion foreign exchange reserves will act as a cushion against global volatility as they’re about 52% of the country’s gross domestic product and triple its short-term foreign debt, she said.

The Thai currency pared gains of as much as 0.6% after Daranee’s comments before trading 0.2% higher at 36.047 per dollar. The baht has lost more than 12% since mid-February, tumbling this week to its weakest since early 2016.

BOT has no plans to impose capital controls as Thailand is pursuing a liberalized forex policy, Daranee said, adding that such an approach makes the baht a shock absorber and stabilizer. The country’s assets are luring flows, with stocks alone netting about 104 billion baht ($2.9 billion) until July 5, she said.

The central bank doesn’t expect the currency weakness to fan inflation immediately and expects the baht to limit losses, or strengthen in the second half due to a rebound in tourist arrivals, BOT’s Director for Monetary Policy Department Nasha Ananchotikul told the same briefing.
Inflation Expectations

While BOT has signaled in recent weeks that it will raise rates, the timing will depend on many factors, Nasha said, adding that BOT was not behind the curve as inflation expectations were still anchored in the medium term.

The central bank officials are seeking to damp market expectations of an early rate hike with consumer prices accelerating in June to a 14-year high, saying supporting the economy’s recovery from the pandemic remains a priority. Some analysts have suggested raising rates to narrow the yield differential with the US to stem capital outflows and shield baht.

“Thai rate normalization will be gradual as the economic recovery is still in its early stage,” Nasha said. Thailand follows an independent monetary policy that takes into account local factors and is not much influenced by the US moves, Nasha said.
“We will have to weigh the benefits we will get from raising rate on inflation and the burden the rate hike will place on economy,” Nasha said. “It’s an art and not pure science based on calculations.”

Highlights of other comments from Nasha:

• Rate hikes won’t affect inflation instantly but will help anchor inflation expectations
• Economy will return to pre-Covid levels early next year and may be close to its potential levels by late 2023
• Thailand doesn’t need to raise rates in line with US but it’s a factor that needs to be monitored for its impact on Thai economy