Baht walking a tightrope

A man walks past a currency exchange office in Bangkok on May 19.  Somchai Poomlard

A man walks past a currency exchange office in Bangkok on May 19. Somchai Poomlard

Industry leaders have urged the government to carefully manage the baht to keep its value at an exchange rate that benefits both importers and exporters.

The baht traded at 34.62 against the dollar as of May 9, down 3.4 percent since the beginning of the year, the lowest in five years.

The decline was due to the conflict between Russia and Ukraine continuing to push up commodity prices and inflation, the recent rate hike by the Federal Reserve, and the worsening outbreak in China and the ensuing supply chain and shipping challenges, Poon Panichpibool, market strategist at Krungthai Bank said earlier.

A weaker baht is good for exports and tourism, but could affect other industries that depend on imports of key raw materials.

An employee counts bundles of 1,000 baht banknotes.Apichat Ginacourt

best value

The Federation of Thai Industries (FTI) said there are some advantages to a weaker baht, but the government must carefully manage the baht’s supply and demand to keep its value at an exchange rate that benefits importers and exporters.

FTI chairman Kriengkrai Thiennukul did not provide a proper value, but warned that the recent depreciation against the dollar could deal a further blow to the faltering economy.

While exporters can take advantage of the baht’s depreciation, importers of oil and some key raw materials will bear the brunt as they have to pay more to import these products, which are currently expensive or scarce due to the Russian-Ukrainian war, he said. said.

The devaluation of the Thai baht has the greatest impact on SMEs.

“We are worried about SMEs because they have to import raw materials and their sales are limited to the domestic market,” Mr Kriengkrai said.

“They will encounter higher production costs and need to develop a risk management plan.”

Many companies are dealing with shortages of raw materials by stockpiling these items or sourcing raw materials from different countries. They are concerned that continued economic uncertainty will lead to severe disruptions to global supply chains, he said.

China, known as the “world’s factory”, could find its raw material exports in trouble if Beijing goes further with a lockdown to curb the spread of the virus, while the fallout from the Russian-Ukrainian war and sanctions on Russia are creating another hurdle to the deal, Mr Kriengkrai said.

If the Thai government cannot deal with currency fluctuations, many Thai manufacturers will face new economic problems that will worsen their financial situation, he said.

Mr Kriengkrai said the baht usually fluctuates within a range against the US dollar, but authorities must ensure fluctuations are in line with neighbouring currencies to keep Thailand competitive in the global market.

A woman collects banknotes at Bangkok Bank headquarters on Silom Road. Somchai Poomlard

continuously rising

Amonthep Chawla, head of research at CIMB Thai Bank (CIMBT), forecasts that the dollar will continue to rise compared to other currencies, including the baht, as the Federal Reserve continues to raise policy rates throughout the year.

The Fed is expected to raise policy rates by another 50 basis points each in June and July. After that, the extent of rate hikes depends on keeping inflation under control, Mr Amonthep said.

The Federal Reserve raised its policy rate by 50 basis points in May, the most in 22 years, after U.S. inflation rose to 8.3 percent in March, a 40-year high.

He said U.S. inflation briefly fell to 8.1% in April, so the Fed should not raise rates by 75 basis points in the second half of the year.

Mr Amonthep said the widening spread between the Fed’s policy rate and other central banks, including the Bank of Thailand, would affect foreign capital outflows from U.S. markets, especially emerging markets such as Thailand.

This situation will support the appreciation of the US dollar compared to other currencies.

CIMBT expects the baht to hover around 34.50 to the dollar around the middle of the year, before gradually recovering in the second half of the year, helped by tourism receipts in line with the rise in offshore tourist arrivals.

However, the ongoing Russian-Ukrainian war is a key risk factor exacerbating uncertainty in the global economy, currency markets, inflation rates and energy prices.

He said the baht could weaken further than current forecasts if the Fed’s sharp rate hikes fail to bring down inflation.

The Kasikorn Research Center said the baht’s depreciation is normal and not particularly worrying as it is caused by external factors and is in line with most Asian currencies amid concerns that the Federal Reserve will implement more aggressive monetary policy tightening to rein in the U.S. Rising inflation, devaluation of the Thai baht.

The research house believes the Bank of Thailand will be able to mitigate any serious impact from the baht’s depreciation as it is closely monitoring the situation.

Kasikornbank expects the baht to trade between 34.20-35.00 baht against the dollar this month.

Krungsri Securities said export stocks such as Thailand United Group (TU), Asia Sea Corporation (ASIAN), GFPT, KCE Electronics (KCE) and Hana Microelectronics (HANA) will benefit from the depreciation of the baht.

An employee displays a foreign exchange board at a currency exchange office. Somchai Poomlard

The right price is preferred

Chaichan Chareonsuk, chairman of the National Shippers Council of Thailand, said responsible agencies should help manage the baht at an appropriate exchange rate to keep exports competitive.

“For exporters, around 34.50 baht per dollar is the most suitable exchange rate. We believe Thailand’s exports are competitive with products priced in other currencies,” he said.

“A suitable range for the baht to the dollar is 33.50 to 34.50. If the currency depreciates to 35 baht, it will negatively affect imports and make imported goods more expensive.”

Mr Chaichan said the government needed to take into account the concerns of exporters and importers in trying to reach an appropriate tax rate to mitigate the impact on the economy.

A man and a woman walk past a currency exchange office at Kbank in Bangkok, Thursday, May 19, 2022. Somchai Poomlard

cost pressure

Somsak Pejthaveeporndej, chief executive of IT distributor VST ECS Thailand, said the weak baht has pushed up the cost of imported technology products, which are already under pressure from a shortage of chipsets.

The shortage of chipsets has led to higher prices for IT products, especially high-end products such as networking, storage and network security equipment, Mr. Somsak said.

He said the company was managing risk by currency hedging with banks and discussing the matter with suppliers.

For government projects, the company will try to fix the exchange rate with suppliers for 90 days, Mr. Somsak said.

“For the IT consumer segment, the price of laptops has risen by an average of 1,000-2,000 baht due to chip shortages, but we did not raise prices because we ordered products before depreciation,” he said.

Mr Somsak urged the Bank of Thailand to intervene to prevent the currency from depreciating to 35-36 baht per dollar, which would also push up fuel costs.

“We offer free shipping to our dealers. If the baht depreciation eventually leads to higher fuel costs, we may ask dealers to absorb this in the short term as logistics providers increase shipping costs,” he said.

According to Mr. Somsak, the company has maintained business growth this year due to increased demand for IT products, especially from businesses that are placing orders quickly due to fears of shortages.

“If they delay making a decision, the product they want may not be available when they need it,” he said.

Foreigners exchange currency at the Travelex booth. Somchai Poomlard

tourism stimulus

Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents, said the devaluation of the baht will definitely benefit tourism as tourists can spend less on the same products and services when traveling in Thailand.

Mr Sisdivachr said the promise of cheaper travel could persuade tourists to travel, helping to accelerate the recovery from the tourism slump of the past two years.

Even if consumer goods in Thailand become more expensive due to inflation, tourists staying for 5-10 days will not be bothered by rising costs, he said.

However, Mr Sistivah said the economies of some tourist source markets were still not as healthy as they were before the pandemic due to the impact of the global pandemic, which could limit visitor numbers.

Other factors to watch, he said, include the conflict between Russia and Ukraine and the continued threat of inflation, which directly affects the tourist sentiment of foreign tourists.

“After further easing of travel restrictions, the number of passengers has gradually increased,” Mr Sistivah said. “Based on the baht’s depreciation alone, the outlook for tourism may not improve overnight.”

The country’s fiscal position is fairly stable, which will limit the baht’s depreciation in the medium term, he said. Mr Sisdivachr said Thailand was not in the same situation as it was during the 1997 “Tom Yum Kung” crisis, during which the baht was attacked and devalued sharply to more than $50.

He advised tour operators to monitor the currency situation.

Vichit Prakobgosol, vice-president of the Tourism Council of Thailand, said the devaluation of the baht will help speed up travel decisions and create more jobs and revenue for operators serving the inbound market.

Mr Vichit said there could be short-term benefits until mid-year, but companies would face the bigger impact of a surge in oil prices, which could worsen if the cost of energy imports rises due to currency depreciation.

Forex prices are displayed at currency exchange kiosks. Somchai Poomlard

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