Why the Thai baht is surging
The Bank of Thailand is finding it tough to stop the baht from surging.
The currency advanced as much as 0.3% on Friday to 30.187 per dollar, the strongest level since May 2013. That takes its gain to 7.8% this year, more than any of its emerging-market peers except Russia’s ruble.
The gains have defied the efforts of authorities, who fear the baht’s strength is becoming a drag on the economy. Finance Minister Uttama Savanayana said on Oct 9 that the central bank should “take care” of the currency.
Why is the baht so strong?
Several factors are attracting investors to Thailand, making it a haven for foreign money. But its healthy current account tops them all, according to analysts at Goldman Sachs Group Inc. The International Monetary Fund forecasts the country will post a surplus of 6% of gross domestic product this year, almost double that of Japan.
Thailand’s reserves and negligible inflation also provide investors comfort. The central bank’s foreign-cash pile stands at $220 billion, the equivalent of more than 12 months of imports. And inflation, currently 0.3%, has been running below the central bank’s target of 1% to 4% since June.
As if these weren’t enough, Thailand is getting a boost from gold. A hub for bullion trading, Thailand has benefited as jitters about the US-China trade war and global economic slowdown have driven a 17% gain in the price of the metal this year.
How much more can the baht appreciate?
Right now, all eyes are on whether the baht will breach 30 per dollar, a level it hasn’t reached in more than six years. Of the 24 analysts surveyed by Bloomberg on the currency, Morgan Stanley is the only one expecting it to reach that point by the end of this year. The median estimate is for it to fall to 30.8 by then and to 31 in 2020.
According to the IMF’s real effective exchange rate calculations, which take into account Thailand’s trade flows, the currency’s already well overvalued. It’s at the strongest, by that measure, since its crash in 1997, which triggered the Asian financial crisis.