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Thai Baht Extends It’s Gains Crossing Over 32 US Dollar Benchmark



The baht could further appreciate to 31.75 baht against the dollar next week

BANGKOK – The Thai baht extended its gains on Friday, trading at below 32 to the US dollar and ending the first two weeks of the year up 2%, while exporters have asked the central bank to take measures to put the baht in line with its trade counterparts to retain a competitive advantage.

The Thai baht’s strength since early last year could be due to the dollar’s retreat and Thailand’s current account surplus, while capital flow to portfolio investment is still minimal, said Chantavarn Sucharitakul, assistant governor for corporate strategy and relations at the Bank of Thailand.

The local currency is moving in line with regional peers and volatility is moderate, Mrs Chantavarn said after a meeting on Friday with the Thai National Shippers’ Council (TNSC).

Foreign investors cashed out of Thai shares at a net 7.24 billion baht year-to-date, according to the Stock Exchange of Thailand (SET). Net foreign inflows into Thai bonds reached 47 billion baht as of Jan 11, the Thai Bond Market Association said.

The baht at one point on Friday rose to 31.91 against the greenback, firming 2.1% year-to-date, before slipping to 31.96 in late trade.

In 2017, the baht was the second-best gainer in the region after the South Korean won, with the former up 10% and the latter up 11%.

Exporters and business operators have fretted over the baht’s rapid gain, requesting the meeting with the central bank and setting up a committee tasked with monitoring the currency’s movement.

The TNSC recently estimated that every one-baht rise against the dollar would cause a loss of 230 billion baht worth of export income, while the spillover effect from the loss would mean 791 billion worth of liquidity disappearing from the economic system.

Mrs Chantavarn said the central bank has intervened periodically when the baht’s strength was detrimental to the country’s economy to alleviate the effects on business operators.

She said the current rise could be attributed to the upsurge in foreign reserves last year.

The central bank’s intervention is not aimed at making Thailand gain a trade advantage against other countries or resist market forces, she said, adding that any action would be intended to help the private sector adjust.

The central bank reported that Thailand’s foreign reserves climbed to US$204 billion (6.5 trillion baht) as of Jan 5 from $202.6 billion at the end of last year and $171.9 billion at the end of 2016.

Amid high uncertainty over the trade policies of major economies and geopolitical tensions, the Bank of Thailand agreed to coordinate to support and promote business operators to hedge against foreign exchange risks or shift to quote prices in terms of baht or other currencies moving in line with the baht instead of the US dollar, she said.

Almost 80% of operators still stick to quoting their product prices in dollar terms, but the US accounts for less than 20% of Thai trade, she said.

Moreover, operators who are liable for foreign-currency-denominated debt repayment can protect their businesses against exchange-rate fluctuations by opening a foreign currency deposit account.

Mrs Chantavarn said the central bank has joined with commercial banks to launch an FX options project to help small and medium-sized enterprises (SMEs) pay a lower fee when hedging against risks.

Some 2,000 SME operators have received coupons, which can be used to buy options or lock in currency rates to hedge against foreign exchange risks on export value totalling $200 billion since the scheme kicked off late last year.

The Bank of Thailand and the TNSC have agreed to widen accessibility of the FX options project to the council’s members. Operators have been urged to exploit the stronger baht by importing machinery and equipment to upgrade their productivity, slim down operating costs and add value to their products to beef up competitiveness, she said.

TNSC chairwoman Ghanyapad Tantipipatpong said after meeting central bank officials that the country’s economic pickup and high current account surplus, resulting from the solid export and tourism sectors, are contributing to the firmer baht.

She said the council is maintaining its export growth forecast at 5.5% this year, despite the baht’s rally.

Export volume is expected to to reach $20 billion a month on average.

Exporters, small operators in particular, should adjust themselves and hedge against foreign currency risks, Mrs Ghanyapad said.

She said that 2,000 of the 17,000 SME exporters have participated in the FX hedging training programme arranged by the Thai Bankers’ Association, but less than 200 have taken out the financial risk management instrument.

Kobsit Silpachai, head of capital market research department at Kasikornbank (KBank), said the stronger baht is in line with other regional currencies, led by the Chinese yuan, after a report that China could slow or even stop its buying spree in US sovereign bonds.

“Given the new factor of China [in addition to Thailand’s strong economic fundamentals], the baht could further appreciate to 31.75 baht against the dollar next week,” he said.

With the baht strengthening at a faster pace than expected, the bank is considering revising its baht-dollar forecast from the 32.30 baht mark expected by year-end.

Given seasonal factors, the baht is expected to hit this year’s high against the greenback in April.

The Fiscal Policy Office will review a series of economic indicators this year, including GDP growth, oil prices and the baht-to-dollar rate on Jan 29, said Soraphol Tulayasathien, director of the Macroeconomic Policy Bureau.

The current baht value is now firmer than the previous forecast of 33.5 to the dollar, but the trend could be reversed late this year when the US Federal Reserve raises its policy rate, he said.

Despite the baht’s run-up, it is still in line with other regional currencies, Mr Soraphol said, adding that a flood of offshore inflow to Asia is driving up currencies.

In the meantime, Theeraj Athanavanich, a bond market adviser at the Public Debt Management Office (PDMO), said the Finance Ministry has initiated efforts through every channel to help stem the baht’s rapid gain, but such attempts have become more difficult due to the influx of capital inflows.

The PDMO will ask foreign entities that recently won approval to issue baht-denominated bonds to speed up the bond issuance, Mr Theeraj said.

The Finance Ministry allowed foreign state agencies and companies to apply for baht-denominated bond issuance as a special case from Sept 6 to Oct 6, a move expected to help curb the baht’s rapid gain. Foreign entities that received Finance Ministry approval are to issue the baht bonds with a maturity of up to three years between Nov 1, 2017 and March 31, 2018.


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