Baht hits 13-month peak as Bank of Thailand holds rates

The baht is poised to strengthen further, potentially reaching 34 per US dollar or even higher, following a 13-month peak attained yesterday. This surge occurred as the Bank of Thailand opted to keep the policy rate steady at 2.5%, encouraging potential inflows ahead of the US Federal Reserve’s upcoming September meeting.

Closing at 34.21 on August 20, the Thai currency rallied to 34.06 against the dollar early yesterday, marking its highest level since July 2023, before settling at around 34.13-15.

The appreciation of the baht mirrored movements in other Asian currencies, driven by a drop in the dollar index to its lowest point since December last year. Market expectations suggest the US central bank might ease its policy stance as early as next month.

Over the past two days, the baht appreciated by over 2%, coinciding with the Bank of Thailand’s decision to maintain the policy rate at 2.5%, a decade-high level, said Kanjana Chockpisansin, head of research, banking, and the financial sector at Kasikorn Research Centre (K-Research).

“The baht has quickly gained strength amid continued fund inflows as the market is convinced the Fed will cut rates in September.

“K-Research projects the baht to trade within the 34 to 34.20 range against the dollar in the short term.

“If the baht gains continuously to break 34 to the greenback, it could continue to appreciate.”

Asia Plus Securities (ASPS) remarked that Thailand’s second-quarter GDP growth surpassed market forecasts, which reassured the central bank that the current interest rate is adequate for maintaining economic and financial stability.

“That supported the ease of fund outflows and strengthened the stability of the baht.”

A potential reduction in US rates by the Fed, from a 23-year high of 5.25 to 5.5%, combined with the Bank of Thailand maintaining its rate, could narrow the gap between Thai and US rates, said the brokerage.

“The smaller gap of 0.25 percentage points means the baht would gain by 0.70 to the dollar.

“If the Fed cuts US rates by 0.25 to 0.50 percentage points as expected, the Thai currency would gain by 0.7 to 1.4 baht when compared with the dollar.”

Caretaker Finance Minister Chunhavajira downplayed the baht’s strengthening, suggesting it reflects market confidence, which has led to increased capital inflows into Thailand, reported Bangkok Post.

“Such fluctuations are still manageable and there is no cause for concern.”

Pichai emphasised that Thai entrepreneurs must adapt by improving the quality of their products.