The Thai baht is soaring against other emerging currencies including the US dollar. However, the strength of the Thai is raising concerns as the country’s domestic economy weakens. Since the start of 2019, Thailand’s baht has surged by more than 5% against the US dollar. On a year-over-year basis, the baht has bounded even higher at 8%.
Other top performing emerging currencies in the region have strengthened against the US dollar but they are still lagging behind the baht. The Indonesian rupiah and the Philippine peso have risen by 3% against the US dollar this year.
However, a strong baht is a cause for worry among policymakers and exporters in Thailand. According to Gareth Leather, senior Asia economist of research firm Capital Economics, most emerging market currencies have appreciated against the US dollar but none of them have risen as strongly as the baht.
Thailand’s baht became stronger because of the support from Thailand’s large trade surplus and a hawkish central bank. But, a strong baht makes the country’s exports more expensive making them less attractive in the international markets.
According to analysts at Singapore Bank DBS, a strong baht is bad news for the country’s trade competitiveness. A study by the Bank of Thailand showed that for every 1% that the baht strengthens against the dollar, export prices in dollars increase by 3%.
Exports are declining for the third straight month in May. Exports have fallen by 5.79% from a year earlier. The numbers are worse than the 3.6% decrease that analysts have projected in a Reuter’s poll. Last Tuesday, data revealed that Thailand’s manufacturing output for June is headed the same way as the previous months.
The strong currency came at a most importunate time with slow exports and imports and a declining tourism. The country’s central bank could cut rates to curb the rising baht but economists are not very optimistic with such move.
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