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Plunge in the baht 'a short-term issue'
Publication Date : 23-08-2013
Thai economists and financial authorities say the sharp depreciation of the baht is likely to be a short-term phenomenon and foresee stability returning when the economy picks up, as economic fundamentals remain strong.
Commerce Minister Niwattumrong Boonsongpaisan said yesterday that the government would not interfere with the Bank of Thailand's work in stabilising exchange rates.
After a brainstorming session with the prime minister and Finance Minister Kittiratt Na-Ranong, Niwattumrong said the heart of this issue was to ensure stability and alignment with regional currencies. He said it would take a month or two to see if the baht's decline would boost Thai exports and whether the export target of 7-7.5 per cent would be revised.
Two forces are speeding the depreciation of regional currencies: the United States' plan to scale back its asset-buying or quantitative-easing (QE) measure because of improving economic health; and the worse-than-expected economic data within the region. Investors are shifting money back to the US.
The baht passed 32 to the dollar yesterday, a level unseen since September 2010, and economists say it could strengthen if the local economy shows improvement in the second half.
Tak Bunnag, head of Bank of Ayudhya's treasury group, said foreign investors had shifted investment out of Asia for some time. So if the Federal Reserve really acts to taper its QE, the baht should not fall much more, or it could even rise again.
In the year to date, the baht, at 32.12, has weakened by 4.8 per cent against the US dollar. Thailand's current-account deficit in the first half stood at 1.9 per cent.
Tak attributed part of the depreciation to the National Economic and Social Development Board's downward revision in the economic forecast on Monday. GDP figures roughly weigh 30 per cent when foreign investors make a decision, he said. This year's growth estimate for Thai gross domestic product was cut on Monday to 3.8-4.2 per cent after slowing in the second quarter to 2.8 per cent.
Kampol Adireksombat, senior economist at Tisco Securities, said the baht had fallen beyond its fundamentals.
His view was that the Thai economy should improve in the second half. If exports pick up, Thailand could show a balanced current account or even a slight surplus. In a worst-case scenario, a deficit of less than 1 per cent of GDP was anticipated. In these scenarios, it was likely the baht would strengthen against the dollar to around 31.5 later this year.
While urging the Bank of Thailand to restore exchange-rate stability via use of foreign reserves of US$170 billion or so, Kittiratt insisted yesterday that the economy remained strong. Even with slowing growth in the second quarter, investment was on track and would keep unemployment low.
To boost the economy in the second half, aside from pushing for the disbursement of the state budget and 20 measures backed by the Cabinet on August 6, the government would resort to no new measures, said Kittiratt.
"All the measures are not to boost the economy in the short term, but to invest in what we should and what will create long-term value," he said. All state agencies should also lend a hand in boosting consumer and investor confidence.
He said that in the short term, the macroeconomic picture remained satisfactory. The baht's depreciation was not worrying, in light of low inflation, as that would cushion negative impacts on importers.