THAILAND’S baht is on course for its biggest quarterly gain since the Asian financial crisis, threatening to derail a recovery in the nation’s key tourism and export industries.
The currency’s 10 per cent surge against the US dollar since the end of June – the most since the first quarter of 1998 – has prompted calls from the tourism and hotel sectors, as well as business chambers to temper the rally.
Earlier this week, Commerce Minister Pichai Naripthaphan and Deputy Finance Minister Paopoom Rojanasakul urged the Bank of Thailand (BOT) to take steps to rein in the currency and stem its volatility.
While the baht rally was driven largely by the US dollar slump ahead of the US Federal Reserve’s rate cut on Wednesday (Sep 18), the outsized gain compared with the currencies of Thailand’s trade partners may prompt buyers to scout for cheaper sources, according to the Federation of Thai Industries.
While foreign tourist arrivals remain robust, it is only a matter of time before the local currency’s strength squeezes shopping and hotel spending, according to the Tourism Council of Thailand.
The strong baht is the latest challenge for the new prime minister, Paetongtarn Shinawatra, who has pledged to stimulate South-east Asia’s second-largest economy and reduce the cost of living. While Thailand’s gross domestic product growth has trailed neighbours including Indonesia and the Philippines, its tourism and exports have been among the few bright spots in the economy.
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With Thai exports accounting for almost 60 per cent of GDP, authorities have been exploring ways to sustain a recent pick-up in shipments.
The baht’s sharp gains are adding to private sector woes such as high production costs and a flood of cheap imports from China, Federation of Thai Industries chairman Kriengkrai Thiennukul told reporters on Wednesday.
“The rapid gains in the baht has made it even worse for exporters,” Kriengkrai said. “They are exhausted and it has become harder to survive. What we want is a stable baht and help in dealing with high financing costs.”
The Thai currency has moved in a wide range, making it difficult for exporters to conduct business, Paopoom said on Thursday. Steps should be taken to ensure that the baht “is not too weak, or too strong, and most importantly, not too volatile”, he said.
Soaring volatility
The BOT has said it will ensure that exchange rate swings are not excessive and damaging to local businesses. The baht’s three-month implied volatility against the US dollar is at 9.14 per cent, near its highest since January and more than the average of 7.96 per cent this year.
Foreign funds have poured in about US$2.6 billion into Thai bonds and stocks this quarter, helping lift the currency and the main equities index.
The baht’s rise may be among the factors that BOT rate-setters will consider when they meet to decide on monetary policy on Oct 16, said Nattaporn Triratanasirikul, an economist at Kasikorn Research Center in Bangkok.
“Coupled with the central bank’s rising concerns about asset quality, an uneven economic recovery and scaled-down boost from the government’s handout scheme in the near term, this does raise the odds of monetary policy easing in the coming months,” said Krystal Tan, an economist at Australia & New Zealand Banking Group. “It’s difficult to rule out a cut by year-end.”
The baht’s rally has yet to significantly dent impact travellers but it could have a “psychological impact” on foreign tourists’ shopping and spending incentives, said Surawat Akaraworamat, vice-president of the Tourism Council of Thailand.
If the currency remains strong for long “it could affect the number of foreign tourist arrivals going forward as it incurs higher cost among tourists”, said Suksit Suvunditkul, president of the southern chapter of the Thai Hotels Association.
For now, Thailand is on course to meet its target of hosting 36.7 million tourists this year and generating two trillion baht (S$78 billion) in revenue. Arrivals have totalled almost 25 million so far this year, up 31 per cent from a year earlier. BLOOMBERG
