Goldman Sachs Sees Baht Capped by Intervention to Shield Exports

Thailand’s central bank may cap a rally in the baht, Southeast Asia’s best-performing currency this year, to protect exporters, according to Goldman Sachs Group Inc.

The baht has gained 1.6 percent against the greenback in 2015, heading for the biggest quarterly advance in two years, according to data compiled by Bloomberg. A Morgan Stanley trade-weighted index for the currency is near a 22-month high, while the balance of payments, a measure of international cash flows, moved to a surplus in January for the first time since July.

“The central bank is likely to be more attentive to the effect that the trade-weighted baht appreciation will have on export competitiveness,” Jonathan Sequeira, a Hong Kong-based analyst at Goldman Sachs, wrote in a report Tuesday. “Appreciation pressure will likely be mitigated by an increase in reserve accumulation over 2015.”

There’s a risk that the central bank will react to the currency’s strength as the nation’s exports are sensitive to movements in the trade-weighted index, with a time lag of between four to eight quarters, Sequeira said.

Thailand’s foreign-exchange reserves climbed to $157.3 billion last month, data compiled by Bloomberg show. Morgan Stanley’s trade-weighted baht index has risen 2.8 percent this year to 114.85 and reached 115 last month, the highest since April 2013.

Finance Minister Sommai Phasee said in February that no measures were needed on the baht and he wouldn’t put pressure on the central bank to lower borrowing costs.

Thailand’s balance of payments reverted to a $719 million surplus in January, from a $16 million deficit the previous month. The Bank of Thailand reported a $2.5 billion excess in the current account, part of the overall balance of payments and a fourth straight monthly surplus.

The balance of payments could remain in surplus by a range of $5 billion to $10 billion this year, which will likely be constructive for the baht, Sequeira said.

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