Photographer: Brent Lewin/Bloomberg

Thai Central Bank Says Further Baht Gains May Hurt Recovery

  • Foreign funds invested net $13 billion in Thai bonds, stocks
  • Bank of Thailand has to monitor the currency, Chantavarn says

Thailand’s central bank is concerned further appreciation of the baht will hurt exporters and damage the nation’s economic recovery.

The currency advanced to the strongest level in 13 months last week as overseas investors boosted their holdings of the country’s stocks and bonds this year. Exports have contracted in 16 of the past 18 months, prompting Prime Minister Prayuth Chan-Ocha to increase spending to counter the slump. The currency has also rallied as investor confidence was bolstered by the peaceful approval of a new constitution in an Aug. 7 referendum.

“To date, the appreciation of the baht might have dampened the cash flows of Thai exporters,” Bank of Thailand Assistant Governor of Financial Markets Chantavarn Sucharitakul, said in an e-mail interview. “Further strength in the baht might also derail the recovery of the Thai economy – a concern which the Bank of Thailand has to monitor closely.”

The baht was at 34.72 per dollar as of 10:35 a.m. in Bangkok, having gained 3.8 percent this year. It appreciated to 34.50 on Aug. 19, the strongest since July 2015.

Funds based overseas boosted their holdings of the nation’s stocks and bonds by $13.3 billion this year, according to exchange data. Emerging-market currencies, including the baht, have rallied on optimism that global central banks will keep monetary policy accommodative to support growth.

“Given that the inflows are externally driven, the reversal process is inevitable and the best that a recipient economy can do is to ensure that it is resilient and sufficiently well balanced to be able to absorb shocks, emanating from both sides be they inflows and outflows,” Chantavarn said.

Thailand’s economy grew more in the second quarter than analysts predicted, expanding 3.5 percent from a year earlier, the National Economic and Social Development Board said last week.

The authorities are resorting first to “verbal intervention” to restrain excessive appreciation of the baht, said Charlie Lay, a currency analyst at Commerzbank AG in Singapore. Another option is to relax foreign-exchange regulations further to encourage capital outflows, he said. The central bank in July allowed investors with assets greater than 100 million baht ($2.9 million) to invest in securities and derivatives overseas without going through a Thai intermediary.

“The bottom line is they’ll probably want to keep the Thai baht stable on a relative basis against its major trading partners,” Lay said. The currency will weaken to 35.4 per dollar by year-end, according to the median estimate in a Bloomberg survey.

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