The baht is at its highest point against the dollar in about two and half years, as Thailand’s policymakers and exporters worry that the strong currency could hurt industry.
The baht, unlike other Asian currencies, also appears immune to speculation that tighter U.S. monetary policy will weaken it.
Thailand’s large current-account surplus, which is running in excess of $40 billion annually, is contributing to the currency’s might. The baht has been rising steadily against the dollar and now trades at around 33 to the greenback, up about 7% from the beginning of the year, outperforming the New Taiwan dollar and Singapore dollar, both of which have risen by more than 6%.
Mindful that a stronger currency may harm the country’s exports, the Bank of Thailand, the central bank, has cut back on issuing BOT bills to discourage inflow of foreign funds, but the measure has done little to slow the baht’s rise.
Some government officials and manufacturers called on the central bank to cut rates to weaken the baht ahead of the bank’s most recent Monetary Policy Committee meeting in late September. But the committee voted unanimously to leave the policy rate, which is already at a historical low, unchanged, promising only to closely monitor developments in the foreign exchange market.
The central bank is holding back because the baht is supported by Thailand’s large current-account surplus, a structural factor. The surplus is driven by a recovery in exports since the beginning of the year and a thriving tourism industry, which brings in more than 30 million visitors a year.
Last year, Thailand’s current-account surplus reached a record $48.2 billion, equal to about 10% of the country’s gross domestic product. The surplus remains relatively high this year, reaching $29.8 billion in January to August, although that is down 12% from the same period in 2016.
TMB Analytics, a unit of TMB Bank, pointed out in an article contributed to the Bangkok Post in September that “portfolio investments from foreign investors, a significant portion of the balance of payments in the past, became smaller relative to net revenues from trade and tourism.” Thus, monetary tightening in rich countries may not affect the baht’s value as much as some people predict.
The central bank is believed to be selling baht for dollars intermittently. As a result, Thailand’s foreign exchange reserves reached $199.3 billion, the highest-ever monthly figure, at the end of September.
Teppei Ino, a senior analyst at Bank of Tokyo-Mitsubishi UFJ’s Singapore branch, said: “A [potential] decline in tourism revenues may reduce baht-buying pressure” in October if the number of overseas visitors falls during the mourning period for the late King Bhumibol Adulyadej. A funeral will be held in Bangkok for five days, starting Oct. 25, one year after his death.
But the funeral also brings the mourning period to a close, which means the economy will probably return to normal, with foreign tourists returning and again putting upward pressure on the baht.