Thai Baht Defying Bank of Thailand’s Attempts to Halt Gains

Currency investors aka Baht bulls are on guard as they gauge Thailand’s Central Bank’s willingness to take more action to curb gains on the Thai Baht.

Measures may include interest-rate cuts and stronger verbal intervention, according to Krung Thai Bank Pcl. However top currency forecasters predict the baht will shrug off these moves. And above all climb again in 2020.

The central bank will seek to defend the level of 30 to the dollar, according to a monetary committee member.

“The central bank’s tools on the baht now are only verbal intervention and a rate cut,” said Jitipol Puksamatanan, Bangkok-based chief strategist at Krung Thai Bank. The No. 1 forecaster for the baht last quarter predicts a 25 basis-point cut in the key rate this year.

Thai baht rose past 30-per-dollar level in late Dec

The baht’s 9% surge against the dollar last year is posing a headache to the Bank of Thailand, which has already adopted a string of measures including reducing the key rate to a record low and easing rules on outflows.

The monetary policy committee is encouraging the central bank to further loosen rules to encourage capital outflows. And also watch out for short-term inflows, Don Nakornthab, a senior director at the bank’s economic and policy department, said on Tuesday during a presentation to analysts in Bangkok.

If the economy is fragile and inflation accelerates due to supply-side issues. There is no need to rush interest-rate hikes, said Bank of Thailand Governor Veerathai Santiprabhob at the same briefing.

Policy makers cut the benchmark rate twice in 2019. The stronger currency is hurting the economic pillars of exports and tourism, at a time when growth remains lackluster.

“The central bank still has room to cut its key interest rate further to help stem the baht’s gain and spur the economy” said Komsorn Prakobphol, a senior investment strategist at Tisco Financial in Bangkok.

30-Per-Dollar

The baht breached the psychologically significant 30-per-dollar level last week for the first time since 2013. The Thai currency has since weakened to trade at about 30.15 per dollar as of 11:46 a.m. in Bangkok on Tuesday.

The Bank of Thailand is “taking care” of the baht and will aim to prevent the currency from strengthening past 30, Kanit Sangsubhan, a member of the monetary policy committee, said on Monday.

It might prove to be a tough battle, with Krung Thai and Oversea-Chinese Banking Corp. Among those predicting the currency will post another strong year. Krung Thai predicts the baht will end the year at 28.7 per dollar. Even more as the nation’s hefty current-account surplus and sizable pile of foreign reserves attract global funds.

“Unless we see some exceptionally strong measures from the BOT, the bias is for the dollar/baht to inch lower,” said Terence Wu, a currency strategist at OCBC, which was the second best forecaster for the baht last quarter.

The baht will climb to 29.44 per dollar by the end of the year,Sangsubhan told Bloomberg.

Baht Vulnerable

The strength of the baht may ultimately be undone not by domestic central bank action, but by global forces.

The baht is the most vulnerable low-yielding currency after four years of gains. Which have taken its valuations to extreme levels, based on a Bloomberg study. It also isn’t expected to benefit as handsomely as its Asian peers from a rebound in global growth.