Economic outlook on the Thai baht

Asia plays a great role in the world economy. As a result, Asian currencies are a big part of the currency market. Today we will tell you about the Thai baht.

Why the Thai baht?

According to the Society for Worldwide Interbank Financial Telecommunication, as of February 2017, the Thai currency was the tenth most frequently used world payment currency. So, there is no doubt that when talking about the Asian currencies we should tell about the Thai baht.

Economic conditions and monetary policy are the main indicators of the currency stability. Let’s look whether the Thai economy and the monetary policy of the Bank of Thailand will be able to support the Thai baht in the environment of uncertainties.

Is the economy healthy?

GDP is one of the most significant indicators of the economic health. Recently, Thai central bank increased its forecast for economic growth and exports in 2018. The central bank sees strong demand for domestic goods and more gradual improvement in Thai domestic demand as key drivers of the economic growth. Positive economic data give more reasons for the central bank to raise the interest rate. Let’s see what the Thailand central bank thinks about the monetary policy.

What about the monetary policy?

Trade wars, geopolitical tensions, and the strengthening dollar create difficulties for all currencies including Thai baht. As we know, one of the most important factors that lead to a currency’s strengthening is rate hikes. The accommodative policy, on the contrary, leads to the weakening of a currency. However, the Thai central bank aims at the continuation of the looser policy. According to the central bank’s members, the current monetary policy will support the continuation of the economic growth and will help to return the inflation to its target. So there is no reason to expect the soon end of the accommodative policy.

But does the baht really need the support of the central bank?

According to estimations, the Thai currency has gained 13% against the US dollar since the beginning of 2017. The baht has already hit a 4.5-year high. However, such a huge appreciation of the baht against the greenback is not good for the economy. As a result, the central bank attracts foreign bond issuers to cool the baht.

Why is it difficult for the central bank to fight against the strong baht?

The reason is a threat to be on a US Treasury’s list of currency manipulators. If the country is on the list, there are negative economic and political consequences. If Thailand is on the list, it will cause big problems for its exports.

If there are any reasons to worry about the future currency rate?

A decline of tourists after the Songkran festival in the middle of April and payments to foreign stock investors cause a decline of the currency in May every year. However, according to estimations, this time a seasonable downward movement will be worse than usual. Reasons are increasing bond yields of the developed countries and the stable economic growth that push investors away from emerging markets such as Thailand. Moreover, the strengthening US dollar will make the baht’s decline wider.

However, the declining baht may support Thai exporters that were suffering from the high appreciation of the baht.

Based on the above, we can say that there is a possibility of the baht’s fall because of the seasonable factor, the strengthening US dollar and growing economies of the developed countries. However, depreciating baht will support the Thai economy, especially exports. The accommodative monetary policy will bring the inflation to the central bank’s target and will support the further economic growth.