Somkid urges BOT (Bank of Thailand) action on baht

THE government’s economics chief has voiced his concerns over a strong baht with his central bank counterpart, citing the impact on farmers and calling on him to be ready to put the brakes on further gains in the currency.

Deputy Prime Minister Somkid Jatusripitak yesterday said the government was worried that a chain reaction would set in as farmers across the country struggled with burden of an appreciating currency.

Somkid said he had aired these concerns with Bank of Thailand (BOT) governor Veerathai Santiprabhob and asked him to ensure that the baht won’t be allowed to rise too rapidly.

 “The governor understands the issue but the central bank cannot quickly bring the value of the baht down due to the many influencing factors,” Somkid said of his talks with Veerathai. Somkid said the central bank’s stance is understandable and that the government cannot intervene in the policymaking of the BOT.

Somkid’s comments follow a meeting he held with senior officials from the many ministries that are formulating economic policies aimed at helping low-income earners. Officials raised the issue of the impact of the appreciating baht on farmers, which makes their commodities less competitive on the global markets.

Somkid said the government plans to set aside Bt12 billion for fiscal 2020 on economic policies that benefit the poor.

 In a separate news conference, Veerathai vowed he would take action on the baht’s strength and has called for other parties to coordinate in actions to remedy its impacts.

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He defended the central bank’s actions in raising the policy rate in December, to 1.75 per cent. Veerathai said the move did not cause to the baht to rise against the US dollar, not did it encourage capital inflows.

This year, capital outflows from the bond market are at US$400million, while inflows into the stock market are just US$100 million, resulting in net outflows of $300 million, he said.

The weaker dollar, combined with the high current account surplus, has contributed to the baht’s rise, he said.

He expressed his concern that a less resilient economy would encounter difficulties with exchange rate volatility.

The currencies of some countries have experienced higher volatility than the baht but their economies are coping with it better than the Thai economy, Veerathai said.

He said that some experts may want the baht fixed at 31,32 or 33 to the dollar but the exchange rate cannot be fixed due to the many external factors that are beyond Thailand’s control.

“The most important is how to make sure the economy can absorb the exchange rate volatility,” he said.

This means that the competitiveness of Thai firms largely depends on pricing, he said in respond to exporters who have complained about the impact of the baht appreciation. 

Importers have been prudent as they have use financial tools to hedge against the risk stemming from exchange rate volatility, but exporters have not yet hedged against such risks on regular basis, Veerathai said.

He promised to make the forwards market more transparent and competitive in order to help businesses to cut hedging costs. Banks‘ clients do not understand how banks run the forwards market and are unclear on the competitiveness of this market, he said.

Veerathai encouraged exporters and importers to rely more on local currencies rather the US dollar.

Thailand’s exports to the US represent 10 per cent of the total, but they quote prices in US dollar on up to 70 per cent of total exports, he said.

He advises businesses to quote their product prices in yuan , yen, ringgit and other currencies of the country’s trading partners.

Thailand should also take advantage of the stronger baht to import capital goods for domestic investments, he said, referring to the relatively weak investment as the major cause of the current account surplus.

Thailand had a relatively high current account surplus of US$37 billion last year, due to surpluses in goods exports and income from tourism.

According to the central bank, the baht has risen 3.93 per cent against the US dollar, hovering above Bt31 since the beginning of the year.

“The rise of the baht is in the middle of the group among currencies of emerging economies. For example, the Russian rouble and the Indonesian rupiah have risen much more rapidly,” Veerathai said,

Source - TheNation

 

#Thailand - ‘Overshooting’ Thai Baht raises fears of sluggish growth

WITH THE stronger baht constraining Thai economic growth, other small emerging market economies are facing the risk of recession, economists warn.

Teerana Bhongmakapat, former dean of economics at Chulalongkorn University, expressed concern about the baht’s rise against the US dollar and regional currencies. “The overshooting baht doesn’t align with economic fundamentals and could hurt growth,” he told The Nation. 

With Bt31 now worth $1, Thai exporters fret it will render their products less competitive on the global market. The average exchange rate on Friday was Bt31.347 per dollar, down from Bt32.351 on January 2, according to the Bank of Thailand.

Teerana said a combined central-bank rate hike in December and foreign investors’ positive sentiment have contributed to the baht’s rise in value relatively to the dollar and other Asian currencies. Meanwhile economic fundamentals are not keeping pace, he said. Economic growth is expected to be less than 4 per cent this year.

Current growth is sluggish while private investment remains weak, with capacity utilisation ranging from 60-68 per cent, Teerana noted. Exports are expected to slow due to global economic deceleration.

With Thailand so economically reliant on tourism, he warned, any global factors that have an adverse effect on foreigners’ travels would badly hurt here.

Many analysts are worried about the US and China entering recessions in the next few years, but Teerana believes the world’s largest economies are unlikely to face either a recession or a growth contraction in two consecutive quarters. 

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Rather, they’re likely to have slower growth, he said. 

The US has a large and sound services sector and China has embraced a high-technology value chain in the wake of its manufacturing slowdown, he said.

However, small economies have a higher risk of falling into recession, especially those being targeted for US economic sanctions, such as Turkey and Venezuela, Teerana said.

The slowing of global growth could also adversely disrupt Thailand’s production chain, he advised.

Teerana opposed the central bank’s previous rate hike, noting that the Thai economy has remained in a lower “growth trap” and inflation is quite low. 

He did not accept the central bank’s argument that the current 1.75 per cent policy interest rate could still accommodate economic growth. 

“Look at the US – the world’s largest economy – which has had high growth and low interest, ranging from 2.25 to 2.5 per cent,” said Teerana. “The interest rate market is expecting that most other countries will be cutting rates within one year, with the exception of Thailand,” noted Kobsidthi Silpachai, head of capital markets research at Kasikornbank. 

So the upcoming meeting of the Bank of Thailand’s monetary policy committee (MPC) is critical, he said.

If the MPC continues to flag concerns about policy space and search for yield, market expectations that the Thai interest rate is on the way up – even as neighbouring countries are lowering theirs – will continue. 

“That will create a diversifying of monetary-policy expectations that will be reflected in the exchange rates,” Kobsidthai added.

Sompop Manarungsan, president of the Panyapiwat Institute of Management, said he didn’t think China would suffer a hard landing, thanks to its wealth of financial resources. China has already boosted domestic consumption to compensate for the impacts of the trade war with the US, he said.

“However, should China’s growth rate drop below 6 per cent, it would be cause for concern for other countries, including Thailand, which have participated in China’s supply chains,” Sompop warned. 

Teerana and Sompop agreed that the US-China trade dispute would continue for some time, with current negotiations likely to produce nothing more than another temporary truce. 

Source - TheNation