Thailand’s central bank is prioritising the country’s nascent recovery by propping up the dollar. The recent strengthening of the baht is being driven by a growing current account surplus and healthy bank deposits while household debt has spiked to critical and alarming levels.

Financial analysts believe that the Bank of Thailand is intervening to keep the baht to dollar exchange rate stable at ฿30 to the US currency but officials at the bank point to an even stronger appreciation against the greenback by other regional currencies as global macroeconomics kick into play especially with the upcoming Biden Presidency in the United States and expected calmer waters for world trade. There are also internal factors, with cash-rich Thai investors preferring to invest their money at home, at this time. One expert at Bangkok’s Economic Intelligence Center believes that the baht may maintain such a position until the end of 2021.

Mr Yunyong Thaicharoen, Executive Vice President of the Economic Intelligence Center believes that a 3% to 5% per annum rise of the baht against the US dollar is sustainable if Thai exporters prepare for what may become a longer-term trend. Since 2014 the Thai baht has gained 10% against the US dollar while the dollar has lost 36% of its value against the Thai currency since 2005.

As the Thai baht continues to hover around the ฿30 to the dollar level, many analysts believe that the Bank of Thailand has been involved in keeping the critical baht to the dollar exchange rate stable at this time, to assist, Thai exporters.

The United States is Thailand’s most important export market and has been pivotal in the beginnings of a timid economic recovery which began in the third quarter of the year and which policymakers in Bangkok fear could easily stall or peter out with a severe second wave of the coronavirus hitting western markets and a spike in the value of the Thai baht against the dollar and other western countries since November in the order of 4.5%.

Baht has strengthened against the US dollar by nearly 10% and this may be a long term trend into the future

However, most analysts in Bangkok believe that the ability of Thai officials to control the exchange rate is limited to the short term.

Since 2014, the Thai baht has strengthened by nearly 10% against the dollar but, in the meantime, it has strengthened by 20.6% against a weighted range of currencies that are critical to Thailand’s export performance.

The dollar has given away over 36% of its value against the baht since 2005.

The reason for the spike in the value of the baht since November is the same as that over the longer period and is also a predictor of things to come. 

Higher government borrowing by western countries particularly aggravated by their generous support for business and populations during the 2020 Covid lockdown periods have seen government debt levels balloon and this is one added factor which is affecting markets.

Inflows of capital into Asia triggered by the US election result in November seeking higher returns

A calmer world trade environment and an increased appetite for risk, which is anticipated under a Biden Presidency despite a forecast this week by Moodys that the new Washington administration will retain many of President Trump’s tariff measures on China and the deep tensions that have developed between China and western powers, has triggered massive inflows into emerging markets particularly Asia.

A sharp insight into what is happening was provided last week by Mr Yunyong Thaicharoen, Executive Vice President of the Economic Intelligence Center, a research firm and think-tank operating under the umbrella of Siam Commercial Bank.

For 2021 the baht to dollar exchange rate may hold relatively steady but exporters should be prepared for further baht rises of 3% to 5% per anum

On a positive note, he suggested that the central bank may be able to hold the currency exchange rate between the US dollar and the baht in check with, at the outset, the risk of a minor fluctuation of between 3% and 5% to the end of 2021 which most analysts predict could see a significant reduction of the effects of the current Covid related crisis.

However afterwards, he predicted that the baht could continue to strengthen against the dollar by up to 5% per year and that this was something that exporters to the United States and other western countries would have to budget into their plans going forward.

He warned that severe strengthening of the baht, at levels of over 5%, would negatively impact export performance.

‘If the baht’s value strengthens by around 3% to 5% per year, this is an acceptable level and allows local exporters to manage with the foreign exchange rate,’ Mr Yunyong said. ‘If the baht’s appreciation exceeds 5% per year, this would affect overall exports’.

Baht has a weakened against the dollar slightly in 2020 points out Bank of Thailand assistant governor

Despite this, Bank of Thailand Assistant Governor, Vachira Arromdee, has pointed out that the Thai baht has, in fact, weakened slightly against the US dollar in 2020 while significant regional currencies such as the Chinese Yuan, Taiwanese Dollar and the Korean Won have surged against it by between 6.5% and 7.2%.

The emerging position of the dollar and other key western currencies is that they are falling faster against other Asian currencies and that Thailand is managing the exchange rate with the US dollar as a priority.

Significant measures to boost capital outflows

The Bank of Thailand has taken an array of significant steps to stem the upward pressure on the baht which includes allowing Thais to make deposits in foreign currencies and to have larger holdings, relaxing constraints on foreign currency outflows and restricting inward bond purchases by making investors above a certain threshold seek advance permission.

These have had an effect but they will be limited, in the longer term, if macroeconomic trends continue as before.

A key factor is that wealthy Thais, despite an uptick, in recent years, of property purchases in key western cities such as London and other parts of the United Kingdom, have shown a distinct preference for investing at home in Thailand.

Constant, inexorable climb in Thailand’s trade current account but the wealth is spread unevenly

Thailand has seen a near-constant climb in its trading current account surplus with the rest of the world. It rose by $984 million alone in October 2020.

The account has seen a virtual constant rise despite the US-China trade war in 2019 and the Covid crisis this year which closed the country’s borders to foreign tourism and shut down swathes of the economy for months. 

The country is getting wealthier but the problem is how that wealth is distributed.

This has been accentuated by an imbalance of financial liquidity which the Bank of Thailand has acknowledged, in recent statements, as a key problem.

This has seen wealthy investors in Thailand snap up properties that have closed and needed to be sold during the Covid 19 crisis here as a once of opportunity for those with funds.

Thailand’s savings rate at the lowest since 1998 but still recorded a healthy 24.6% in September 2020

The scale of this issue can be seen from the fact that while Thailand had a healthy and admittedly severely reduced 24.6% savings rate up to September 2020, the lowest since it peaked at over 40% in 1998, its household debt levels to the end of the year is projected to reach 90% of GDP. 

It tells a story of a country of the haves and have nots.

To put this in perspective, the value of bank deposits in Thailand grew by 1.43% alone from September to October 2020 and stood at ฿14.874 trillion.

This figure swelled in early March and April at the outset of the Covid 19 crisis when Thailand closed off its borders and depositors sought a haven for cash.

To put the problem in another perspective.

From 2017 to 2019 even before the virus crisis, the average Thai income level fell from a peak of ฿27,000 per month. 

In a country with very scant social welfare supports, according to the Bank of Thailand, one in five Thais between 61 and 65 had a financial debt of over ฿100,000.

Late last year, Thailand’s Puey Ungphakorn Institute produced an analysis of all Thai bank accounts.

It showed that 19% of accounts had balances of less than ฿500 while just 10% of accounts accounted for 93% of deposits which continue to swell.

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