The Thai baht is likely to tank further throughout this month due to increased volatility in global money and capital markets following the US Federal Reserve’s hawkish interest rate hike.
By the end of this month, Krungthai Compass, a research house under Krungthai Bank, forecasts the baht to dip to the high-34s to mid-35s against the US dollar.
Several factors have contributed to the depreciation of the Thai baht, including higher volatility in global equity markets and digital assets, said Phacharaphot Nuntramas, chief economist at the research center.
On June 15, the Federal Reserve raised its benchmark interest rate by 75 basis points.
The baht, however, will stabilize after June and strengthen late this year after stabilizing for 3-6 months.
According to Krungthai Compass, a stronger baht to the greenback late this year would be supported by an improving current account.
According to the research firm, foreign tourists should number around 1 million in the first half of 2022, before soaring to 5 million in the second half.
Thai Baht to Increase
The country’s tourism income is expected to reach 300 billion Thai baht this year thanks to foreign arrivals contributing 50,000-60,000 baht each.
According to Krungthai Compass, the baht would be firmer at the end of this year, above 35 to the dollar.
After the Fed increased its policy rate aggressively, the Economic Intelligence Center (EIC), a research unit of Siam Commercial Bank, predicts the baht will continue to weaken to 34.5-35.5 to the dollar in the short term.
It is expected, however, that Thailand’s tourism sector will rebound strongly in the second half of this year and support the country’s economy and currency.
Fed to raise bench rate
A research center estimates that the Thai baht is likely to strengthen to 33.5-34.5 to the dollar by the end of this year.
A stronger baht and a surplus current account in Thailand would support the stronger currency, according to the EIC.
It is expected that Thailand’s current account deficit will persist for the first half of this year.
According to the EIC, the Fed will continue to raise its benchmark policy rate aggressively throughout the remainder of this year.
According to the research firm, the Fed is expected to raise its policy rate by 75 basis points at its July meeting, and by 50 basis points in September.
EIC forecasts another quarter-point increase in the Fed Funds Rate in November and December, pushing it to a range of 3.25-3.5% at the end of the year.
Interest Rate Hikes Coming for Thailand
The Bank of Thailand is being asked to discuss with commercial banks whether they want to raise their interest rates slowly. This is if the central bank decides to raise its policy rate.
It is the central bank’s goal to continue a gradual economic recovery in Thailand, according to Finance Minister Arkhom Termpittayapaisith.
According to him, global energy prices are causing inflation in every country.
According to Sethaput Suthiwartnarueput, the central bank governor, increasing the policy interest rate should not be done too late because inflation continues to rise.
To relieve the burden on its borrowers, the state-run Government Savings Bank (GSB) has committed to maintaining its interest rates as long as possible amid the trend of rising global rates.
Companies should increase their liquidity, which could be negatively affected by future rate increases, according to GSB president Vitai Ratanakorn.
The Monetary Policy Committee (MPC) of the central bank voted 4-3 in June to keep the policy rate at its current level of 0.5%.
A policy rate increase of 0.25 percentage points was voted on by three members.
The next MPC meeting is scheduled for August. A persistently high inflation rate is expected to trigger a cycle of policy rate hikes in Thailand in the second half of this year.
According to the MPC, household expenses would rise by around 850 baht per month at the current inflation rate, and by 120 baht per month at a 100-basis-point policy rate increase.
Increasing interest rates does not have the same impact as rising inflation, according to the committee.