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Thai Baht Is Expected to Survive the Central Bank's Push to Restrain It

Lilian Karunungan
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Thai Baht Is Expected to Survive the Central Bank's Push to Restrain It

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Thailand’s central bank knocked the baht from its perch, but the weakness could be short-lived, according to the currency’s top forecasters.

The Bank of Thailand took steps this month to curb short-term inflows after the currency surged to a six-year high. Those measures are hurting the baht, which is headed for a loss in July and is the worst-performing emerging-market currency in Asia after South Korea’s won.

While “the market will continue to worry about further measures against the baht’s strength,” the currency will probably recover over the medium term, said Qi Gao, a Singapore-based currency strategist at Scotiabank, the most-accurate forecaster for the currency in the second quarter based on Bloomberg rankings. Thailand’s solid economic fundamentals will help lure fund inflows amid a global easing cycle and negative interest rates, he said.

Rebound

The baht could drop more than 2% to 31.5 in the next couple of weeks before recovering to about 31 by the end of the year, according to Gao. The currency rose 0.2% to 30.779 per dollar as of 11:13 a.m. in Bangkok on Wednesday, trimming its loss this month to 0.3%.

Below are the year-end estimates for the baht from the top three forecasters in the second quarter:

Moody’s Investors Service and Fitch Ratings boosted Thailand’s credit-ratings outlook to positive from stable this month, complicating the central bank’s efforts to restrain the currency. The baht is the top performer in emerging markets in the past 12 months, with a gain of about 8%. That strength is hurting exports and tourist arrivals, two pillars of the $505 billion economy.

Thailand has attracted $3 billion of overseas money this year into its stocks and bonds, compared with an outflow of about $60 million in 2018. The nation boasts a current-account surplus and substantial foreign reserves that rose to a record $218 billion this month.

The central bank said on Tuesday it will reduce the supply of short-term bonds in the first half of August. It also cut supply in July to curb inflows.

Capital Controls?

While the central bank could unleash more measures to curb the currency’s gains, it will likely stop short of imposing capital controls after learning from a similar experience in 2006, said Jitipol Puksamatanan, chief strategist at Krung Thai Bank Pcl, the third most-accurate forecaster for the currency last quarter.

The baht should appreciate toward the year-end as rate cuts by the Federal Reserve will weaken the dollar, the Bangkok-based analyst said.

Declines in the baht are an opportunity to buy the currency, said Ray Choy, regional head of treasury and markets research in Kuala Lumpur at CIMB Bank, the second-most accurate forecaster.

“There has been much interest in the Thai baht given its fundamentals,” he said. “With the impending U.S. rate cut and following the baht’s correction, the baht is expected to appreciate. Hence, we see an opportunity in dollar/baht if it moves up.”

(Updates prices in 4th paragraph and latest BOT measure in 7th paragraph.)

--With assistance from Yumi Teso and Sunil Jagtiani.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Karl Lester M. Yap, Nasreen Seria

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