Baht breaks ฿30 to the dollar barrier as funds flow into Thai markets driven by a US Biden victory

December 10, 2020 at 12:27 am
by Joseph O' Connor
in Economy, Foreigners, More News from Thailand, Thailand
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The take-off of a stronger baht will make the management of the economy for Thai authorities more difficult as the last quarter of 2020 and the first quarter of 2021 are already challenged by bottleneck issues in exports, disruption in key western markets due to the second wave of the virus and the loss of high spending visitors to the kingdom, at this time, which is normally the High Season for the now-defunct foreign tourism industry. Kasikorn Research is only predicting 2.6% growth for 2021 dependent on boosted public investment and private consumption gains. It is projecting a 6.7% contraction as the final figure for 2020.

The Thai baht broke through the ฿30 to the dollar barrier on Wednesday but later fell back after reports that the Bank of Thailand had intervened. The news follows a 2% rise in the SET stock exchange on Tuesday as large flows of capital have begun to pour into emerging markets in Asia as confidence grows that a Biden Administration in Washington will usher in a return to the global world economic order.

baht-breaks-฿30-to-the-dollar-barrier — The strengthening baht may be here to stay as most analysts say it will advance further because of a wave of inward investment that is now underway. The stronger baht will hamper Thailand’s ability to export, the key engine that drove the economy forward in the third quarter. Thanyalak Vacharachaisurapol, the Deputy Managing Director of Kasikorn Research Centre in Bangkok (centre), is predicting that the economy will contract by 6.7% this year and that scope for growth in 2021, given the current outlook, is only for 2.6%.

The Thai baht, driven by overwhelming positive sentiment towards Asia with the prospect of a Biden US Presidency strengthening and more positive news on coronavirus vaccines, broke the psychologically important ฿30 to the dollar mark briefly on Wednesday.

The currency later fell back to ฿30.06 to the greenback with reports of an intervention by the Bank of Thailand on the markets. The baht had not been at this level since the dollar dipped under the key threshold on the last day of 2019 in what Bank of Thailand officials then described as an aberration because of the holiday season.

Traders in Bangkok suspect Bank of Thailand moves

Speculation that the Bank of Thailand may have taken action was boosted when it was reported that the central bank did not return a call from news agency Reuters.

Traders and analysts in Bangkok were open to the prospect.

‘There might be some action from the Bank of Thailand to keep the baht at the 30.0 per dollar level,’ said analyst Poon Panichpibool who works at Krung Thai Bank, a key state-owned institution.

Baht to strengthen further say financial analysts and it will be difficult to constrain strong market forces

Mr Poon predicted that the baht will strengthen further and suggested, as have many others in Bangkok financial circles, that it will be difficult for the central bank to reverse market forces.

He acknowledged the concerns of the central bank who Thai exporters are depending on to help maintain the country’s export growth threatened by an even stronger local currency.

Exports have been a beacon of hope for the economy giving economic planners some confidence that the kingdom can achieve some moderate growth towards the end of the year and into 2021 while the country is forced to continue its financially injurious policy of keeping its borders closed to mass-market tourism until a Covid-19 vaccine is administered and safe conditions are restored later in 2021.

‘BoT may try to provide interim relief to slow down the rise, so exporters can prepare themselves to hedge against the risk,’ explained Mr Poon.

The central bank was due to announce further measures to help lower the pressure on the baht to rise, this week. This initiative has already seen it introduce significant measures to ease restrictions on outflows and foreign currency holdings by Thai nationals and entities.

Weakening of the US dollar is linked to the emerging political situation and the shape of a Biden Presidency, more positive on trade, coming into focus

The falling US dollar is being impacted right now by noises from Washington where continuing claims by outgoing US President Donald Trump of election fraud and a massive surge in coronavirus infections and deaths reaching over 290,000 people, are raising concern about the short term environment for the US economy despite record stock gains which are driven primarily by a brighter outlook for US firms operating globally and the prospect of vaccines in 2021.

On the other hand, there is also optimism about the return to the global trade agenda which sees funding moving to the East and Asian markets.

The wave of Biden picks and early comments suggest an emphasis on boosting international trade.

Thailand’s SET stock exchange rose 2% on Tuesday

Shares and investments in all Asian indices, including the SET, have risen in recent days with a 2% spike in Thai stocks seen on Tuesday alone.

The main reason for this is the Biden Presidency and a more positive investment climate for investors seeking opportunity in emerging markets.

This inward movement of funds is consistently driving up the Thai baht.

Soraphol Tulayasathien of the stock exchange in Bangkok forecast this as a continuing trend into 2021 under more open, expansionist and bilateral policies that are expected from the Biden Administration due to be sworn in on January 20th next in Washington DC.

Strong baht is another headache for a government already facing a difficult and challenging economic environment due to the Covid emergency

All this, ironically, poses a headache for Thai economic planners and the Bank of Thailand.

The strengthening baht, coupled with more difficult market conditions abroad in the short term because of the virus in this quarter and a bottleneck in the availability of cargo containers and loading personnel, are creating severe problems for Thailand’s exporters right now.

Thanyalak Vacharachaisurapol, the Deputy Managing Director of Kasikorn Research Centre in Bangkok has even suggested that the Bank of Thailand may lower its already historically low lending rate by 25 percentage point in the first few months of 2021 to help the economy through what could become a very tricky period which is usually supported by the country’s busiest foreign tourism season which is effectively closed this year.

The top analyst is predicting that Thailand’s scope for growth is only 2.6% for next year given the current outlook and the challenges that lie ahead. She also predicted that the final outcome for 2020 will be a 6.7% contraction for the year.

Even this modest figure for growth will depend on pumped-up state investment during 2021 with a rise of 6.2% in funds deployed by the government for public investment and a further 4% gain in private consumption.

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About the Author

Joseph O' Connor

Joseph Anthony is an expat from Ireland who has lived in Thailand for the last decade. He has worked extensively in the media including editorial positions in Ireland and Thailand. He is focused on economic and business stories in Thailand as well as the expat lifestyle.