ASEAN KEY DESTINATIONS
Market forces are effective
Atchana Waiquamdee, said regional central banks had so far adhered to conventional measures in handling strengthening currencies. Steps taken by the Thai central bank include intervention to reduce volatility, allowing the baht to appreciate and promoting outbound investment.
The central bank expects the market mechanism to weaken the baht eventually, she added. Dollar depreciation was the key factor behind gains in currencies across the region. Dealers forecast the baht could reach 29 to 29.50 by the end of the year given the trend of dollar weakness.
Another dealer at a local bank said the baht was now up by 11.4 percent against the dollar for the year to date, compared with 10.8 percent for the Malaysian ringgit, 7.2 percent for the Singapore dollar, 6.1 percent for the Philippine peso, 5.4 percent for the Taiwan dollar and 12 percent for the Japanese yen.
"The main factor that drives baht appreciation is our surplus from trade in goods and services, rather than the interest rate differentials between local and overseas markets," said Dr. Atchana.
The central bank's policy interest rate is now 1.75 percent to 0.25 percent in the United States. India and Indonesia have higher interest rate differentials.
Dr. Atchana said the strengthening baht would lessen the need for the central bank's Monetary Policy Committee to increase interest rates to curb the inflation.
One factor causing the baht to strengthen rapidly has been the low price of equities, as the economy and the Stock Exchange of Thailand had underperformed regional peers during the past two years, she said.
Dr. Atchana said the strong baht had not affected overall export trends yet, as the central bank found that trade partners' economies were a more significant factor than the currency.
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