Left unchecked with the probability at this stage of some interest rate cut the United States, the strength of the Thai baht will only grow. Predictions suggest a rate of ฿29 or even ฿28 to the dollar by years end. The Bank of Thailand’s statement last week should have left no one in any doubt that officials there believe that speculation involving international funds is impacting the situation.
Considered but what could prove to be decisive measures have been introduced by the Bank of Thailand to address speculation in the Thai baht which become effective next Monday the 22nd of July. The moves see a limit put on non-resident bank accounts for securities which is aimed at curbing funds being ‘parked’ in Thailand. The move will see all eyes on the value of the Thai baht this week and other financial indicators. The bank said on Friday it stands ready to take further action against the problem and ‘undesirable speculative behaviours’ in the financial market.
There may be some light at the end of the tunnel for farmers, traders and companies in Thailand, as well as tourists and expats, feeling the disastrous effects of the strong Thai baht. This week, the Bank of Thailand took a careful step to curb what it believes is ‘undesirable’ speculation in Thailand’s currency. The measures were announced on Friday by the Assistant Governor for Financial Markets Operations Group at the central bank, Ms Vachira Arromdee.
While some financial industry executives have tended to play down the move, it does signal an intention by Thai authorities to no longer tolerate the increasingly damaging environment that the highly valued currency has created.
Financial analyst defines it as a ‘warning shot’
One financial analyst speaking to The Nation newspaper predicted that the impact of the measure announced this week would not be significant. ‘I think this was just a warning shot and it implies that the central bank doesn’t really want to lower interest rates,’ said the assistant managing director of Phat Securities Co., Pipat Luengnaruemitchai. He said it was not clear what impact the move would have on the Thai stock exchange.
Shares and the dollar fell after the move
Following the move by the Bank of Thailand at the end of last week, the SET dropped 0.51% from its position on Thursday while the dollar was seen to gain slightly.
A strong jobs report in the US last week has left some analysts of the opinion that though a US rate cut will come sometime this year for sound economic and political reasons, it will be delayed until September. It is thought that Thailand’s central bank will observe the effect of the changes that were introduced last week before considering further action whether it be additional control measures or an interest rate cut. A senior executive with the bank, Don Nakornthab, recently told a seminar that this could not be ruled out in the current economic climate.
Growing and more strident calls for action
There are growing and more strident calls from the export industry and also those engaged in tourism for authorities to act. The next export and commerce report due out at the end of August will be a key moment and will show if the downward spiral is continuing into the second half of this year after Thailand’s growing export figures began to go south at this point in 2018.
Without effective intervention, the Thai baht could rise to a value of ฿28 to the dollar by year’s end
Despite this, there is every possibility that the baht could still appreciate with some forecasters suggesting a value to the US dollar of ฿29 or even ฿28 before the end of the year. The reason is simply that the strong fundamentals that underpin it are attracting investors seeking a safe haven in an increasingly dangerous and unpredictable world economy. This would be calamitous for Thailand’s economy together with the combined headwinds of deteriorating world trade, competition from regional neighbours and signs that Thailand’s tourism industry may be struggling.
All eyes this week on the value of the Thai baht against the dollar prior to July 22nd
In spite of this, financial industry insiders were sceptical at the end of last week at the potential impact of the Bank of Thailand’s action. Tada Phutthitada is the President of the Thai Bond Association.
He pointed out that 4.4 year and 9.4 year bonds only saw their yields rise marginally. However, it is early days as the key new measure only becomes effective on Monday next 22nd July. All eyes this week, consequently, will be on the trend and path of the Thai baht against the dollar. It should tell a lot.
Reduction the limit of non-resident bank accounts for security from ฿300 million to ฿200 million
The measures announced by the bank started with a reduction from ฿300 million to ฿200 million on the limit for non-resident bank accounts for securities. This becomes effective next Monday, the 22nd of July. This should help drive parked money back out of the system and therefore lower the value of the baht.
Waiver for corporations with genuine trade and commercial interests in Thailand
The bank’s regulation left scope for an option of a waiver on a case by case basis for corporations engaged in genuine trade and business in Thailand who are dealing with assorted financial institutions, to submit or file for an exemption from the control. For those engaged in financial activities, the Bank of Thailand expects compliance with next Monday’s deadline.
Authorities to be notified of the beneficial owners of debt securities to assist the bank oversight
The second step or regulation announced was the introduction of a requirement that all non-resident holding debt securities in Thailand are required to notify authorities as to the real beneficiaries of such holdings. This is intended to help the Bank of Thailand monitor and study the situation. This requirement is effective immediately.
Bank stands ready to take further action
On Friday, the Bank of Thailand’s statement issued by Assistant Governor Vachira Arromdee indicated it was closely monitoring the movement of the Thai baht in addition to the activity of non-resident holdings and arrangements that may be impacting the situation. It has promised to take further action if what it termed as ‘undesirable speculative behaviours’ persist.