Baht remains strong despite virus, economic slowdown

The minutes of today’s meeting of the Monetary Policy Committee of the Bank of Thailand predict the Thai economy will expand at a much lower rate in 2020 than previously forecast, and far below its full potential. The discrepancy is mainly attributed to the combined impact of the coronavirus outbreak, delay to enactment of the Annual Budget Expenditure Act, and drought.

On February 5 the committee voted unanimously to cut the policy rate by 0.25 of a percentage point, from 1.25 to 1.00%, in a bid to shore up the economy. As for exchange rates, the committee said although the baht has depreciated significantly in recent days, that fact is inconsistent with economic fundamentals. During period since the last meeting, the baht depreciated against the US dollar and other regional currencies, as reflected by a decline in the nominal effective exchange rate, despite its high level compared with that in the past. The recent depreciation is mainly a result of investors’ concerns over the softening outlook of the Thai economy, and the Bank of Thailand’s relaxation of foreign exchange regulations to facilitate capital outflows. Investors took the view that the baht could depreciate after massive appreciation last year, the report said.

The head of capital markets research at Kasikorn Bank told reporters that the baht is currently 5.6% overvalued. He says while the country will have a lower current account surplus this year, it remains high. Kasikorn Bank has lowered its projection of the current account surplus to US$33 billion this year, down from $33.8 billion. He added that imports are still falling faster than exports, resulting in a continuous current account surplus, the main factor behind the baht’s rise.

The interbank exchange rate was 31.187 baht to the US dollar at the close of trade yesterday, according to the central bank. Many research houses have revised their economic growth forecast downward to below 2% this year.

SOURCE: The Nation