ASEAN KEY DESTINATIONS
Baht and ringgit battle it out
Neighbouring Malaysia and Thailand were neck to neck in currency strengths versus the US dollar last year but the picture is likely to change in 2011, Bank of America Merrill Lynch said. They were the region's top currency performers with 10 percent appreciation but the baht is now the top underperformer with a 3 percent depreciation while the ringgit has chalked up mild gains.
Bank of America Merrill Lynch global research director Dr. Chua Hak Bin said the divergent central bank signals and policy decisions from a relatively more hawkish Bank of Thailand compared to Bank Negara Malaysia may move currencies and interest rates.
The baht has depreciated by about 2.8 percent against the US dollar since the start of the year despite the more hawkish stance, while the ringgit has strengthened about 0.8 percent against the greenback despite being more dovish or neutral.
Chua expects the interest rate differentials to narrow from the current 50 basis points in the coming months as Bank of Thailand is expected to hike 25 basis points in March while Bank Negara is expected to stand pat till May.
Bank of Thailand raised policy rates by 25 basis points to 2.25 percent at the latest policy meeting on January 12 while Bank Negara kept the overnight policy rate (OPR) on hold at 2.75 percent at the latest meeting on January 27.
The anti-inflation battle has been waged in Thailand and this stands in stark contrast to Malaysia's pro-growth stance.
"Containing inflation appears to be more of a priority in Thailand than Malaysia", he said, adding that headline inflation is at 3 percent, while core inflation edged higher to 1.4 percent for December 2010.
Thailand's growth continued to return to its long-term growth trend, while strong export performance pointed to its economic resilience in face of baht appreciating in the previous period.
"Conversely, Bank Negara is facing relatively tame inflation readings, while growth appears to be fast decelerating," he added.
Inflation at 2.2 percent for December remains moderate by regional standards. Inflation drivers are coming from tobacco/alcohol (6.5 per cent) and transport (3.6 per cent), largely because of policy changes.
Chua said Malaysia's growth had been moderating, with both industrial output and exports running at slower rates than Thailand.
Early elections may be a common card, but are not likely to tilt the balance of the policy stance, he said.
Thai Prime Minister Abhisit Vejjajiva has signalled that he may call for early elections, possibly as early as April. Prime Minister Datuk Seri Najib Razak may also call for early elections, but there is no confirmation yet and will depend on the outcome of the Sarawak elections.
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