A New 6-Year High Thai Baht

Thailand’s central bank has found it tough to stop surging Thai Baht.

On Friday, Thai currency advanced as much as 0.3% reaching the closed exchange value of 30.187 per dollar, the strongest level since end of May 2013. By gaining to 7.8% this year, Thai Baht is valued more than any of its emerging-market peers except Russians.

The gains make Thai authorities now fear that Baht’s strength is becoming a drag on Thai economy so the central bank should take a cautious care of the currency. The question is that why is Thai Baht so strong?

The answer may be as follows:

Several factors are attracting foreign investors in to Thailand, making it a haven for foreign investment such as:

1. Healthy current account which according to analysts at Goldman Sachs Group Inc.

2. On the other hand, the International Monetary Fund forecasts the country will post a surplus of 6% of gross domestic product this year, almost a double of Japan’s.

3. Thailand’s reserves and negligible inflation also provide comfort to the investors.

4. The central bank’s foreign-cash pile stands at $220 billion, the equivalent of more than 12 months of Thai imports.

5. Inflation which currently has been running under 0.3% which is below the central bank’s target of 1% to 4%.

6. Thailand is getting a boost from gold. A hub for bullion trading,

7. Thailand has benefited as jitters about the U.S.-China trade war and global
economic slowdown have driven a 17% gain in the price of the metal this year.

The negative consequences:

As is always the case, when a currency strengthens, exporters will suffer. Thai tourism industry, which accounts for about a fifth of its GDP is hurting badly. The Tourism Council of Thailand last month revised down its estimate for numbers of visitors in to the country to fewer than 40 million this year, citing Thai Baht as the main reason. All of which is conspiring to sap growth. The economy will expand 3% this year, down from 4.1% in 2018, according to a Bloomberg survey of analysts Last month, Bank of Thailand said it would relax capital controls to make it easier for locals to move funds abroad and a call for more domestic investment to narrow the current-account surplus where authorities have taken measures to curb short-term capital inflows, including cutting sales of Treasury bills.

In a new move, Bank of Thailand also reduced the cap on non-resident bank accounts from 300 million baht to 200 million baht to boost surveillance so the actual owners of local debt securities should be reported.

On the other hand, they have been reluctant to interfere directly in the foreign- exchange market as Thailand has fear of getting labeled as a country of currency manipulator by the United States.

Whether Thai Baht will reach the 30 Baht per Dollar, Morgan Stanley is the only institute expecting Thai Baht to reach that point by the end of this year. The estimate fall may be 30.8 by then and to 31 in 2020.

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