Stubbornly strong baht might incite ‘another rate cut’
The recent rate cut by the Bank of Thailand (BOT) has not succeeded in reining in the surging baht, raising the likelihood of another interest rate cut by 0.25 of a percentage point before the year-end, economists predict.
While the central bank’s statement on the policy rate reduction did not mention the strength of the baht, economists suspect the baht’s strength and its impact on the Thai economy was a key reason for the Monetary Policy Committee’s decision to lower the key interest rate by 0.25 percentage point -- from 1.75 per cent to 1.50 per cent -- on Wednesday (August 7).
The baht has appreciated by 5.5 per cent thus far in 2019 when compared to neighbouring currencies, and the economic impact of the baht’s strength are starting to show in the country’s poor export performance, said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank (SCB)’s Economic Intelligence Centre.
The central bank, he said, takes economic growth into account when considering monetary policy, leading to the lowering of the policy interest rate on August 7.
The EIC expects the BOT to reduce interest rate once more in 2019 by 0.25 per cent, taking down the policy interest rate to 1.25 per cent due to economic factors such as the impacts of the US-China trade war which has escalated to a currency war and the delayed government economic stimulus package.
The baht was valued at Bt30.77 to the US dollar on August 7 after the interest rate cut, weakening by only Bt0.01 from Bt30.76 per US dollar on August 6, according to the BOT.
The effectiveness of the central bank’s past measures to curb the strengthening baht has been unclear, said Tim Leelahaphan, an economist with Standard Chartered Bank.
On July 12, the BOT reduced the limits for outstanding balances of non-resident baht accounts (NRBA) and non-resident baht accounts for securities (NRBS) from Bt300 million to Bt200 million per non-resident.
Market analysts see this announcement as the central bank’s attempt to reduce speculative capital inflows into Thailand’s economy and keep the baht’s volatility under control.
Since then, the baht has appreciated slightly from Bt30.81 to Bt30.77 per US dollar.
These measures may take some time before their impacts on the baht are shown, the StanChart economist said.
While the BOT’s measures have not been successful in curbing the baht’s strength, which has been damaging Thai export figures, the measures are meant to keep the baht in check and prevent it from getting stronger than it already is, said Mana Nimitvanich, first vice president of Krungthai Bank’s Global Business Development and Strategy Group.
However, despite the measure’s intended impact, Krungthai expects the baht to appreciate even further, predicting the baht will hit Bt30.2 to the US dollar by the year-end.
Economists suggest that the key reason for the baht’s strength is largely unaffected by the BOT’s measures, as Thailand’s current account surplus -- valued at 6 per cent of GDP -- leads to a perception among foreign investors of the country being a “safe haven” as an investment destination.
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