Standard Chartered Plc lowered its rating on the baht to “neutral” from “overweight,” saying slowing economic growth and political risks are likely to damp capital flows into Thailand.
The U.K.-based lender lowered its end-2010 forecast for the currency to 30 per dollar from 29.50, and its end-June projection to 31.50 from 31, according to research published today. The currency, Asia’s best performer of the year with an 11 percent gain, traded at 30.06 per dollar as of 11:18 a.m. in Bangkok, according to data compiled by Bloomberg.
“We still expect the economy to grow reasonably well, but it is definitely slowing,” Thomas Harr, Singapore-based head of Asian foreign-exchange strategy at Standard Chartered, said in a telephone interview today. “We think there is a risk that more political concerns will come back in the first half of next year and we don’t think the Bank of Thailand will allow too much currency strength from here in the short term. ”
Thailand’s economy expanded 6.7 percent from a year earlier in the third quarter, the slowest growth of 2010, the government reported this week. Standard Chartered predicts gross domestic product will shrink in the three months through December and in the first quarter of 2011, before resuming expansion in the second quarter, according to the research note written by Harr and Bangkok-based economist Usara Wilaipich.
Thailand’s parliament is scheduled to vote today on proposed amendments to the constitution, a key component of Prime Minister Abhisit Vejjajiva’s plan to reconcile the country after deadly political protests earlier this year. The nation’s worst political violence in almost two decades prompted overseas investors to sell more local stocks than they bought in April and May, helping to drive the benchmark SET Index of equities down 4.8 percent over the two-month period.
The benchmark stock index has since jumped 34 percent and the currency appreciated 8.2 percent as overseas investors bought $2.35 billion more Thai equities than they sold. The government last month removed a 15 percent tax exemption for foreigners on income from domestic bonds to stem fund inflows.
“What was driving the strength of the Thai baht was the very strong upward surprise in growth, more political calm and also quite significant tolerance from the Bank of Thailand for the currency’s strength,” Harr said. “We think all these factors have changed for the worse.”