Pressure on baht to continue

Business Desk

The Nation

January 17, 2013 1:00 am

Macro-prudential policies anticipated

As the baht hovers near a 17-month high, some Thai exporters are crying out for control measures amid an apparent absence of action to stem the currency's rise in the near term.

The baht yesterday traded below 30 per US dollar for the first time in 16 months. At one point, it hit 29.91, thanks to portfolio flows into the stock and bond markets, driven by quantitative easing in developed economies, which spark flows into Asia. Standard Chartered Bank Global Research said the baht should end the year at 29.75, while HSBC targets 29.80.

Paiboon Ponsuwanna. chairman of the Thai National Shippers' Council, said the stronger baht made dollar-denominated export more expensive, aggravating the situation for exporters who are also experiencing a weakening yen. Japanese Prime Minister Shinzo Abe's loose monetary policy has weakened that currency from Bt38-Bt40 per 100 yen to Bt34.

"Only large exporters can afford hedging contracts," Paiboon said. "SMEs [small and medium-sized enterprises] now have to set their product prices to cover the future appreciation of the baht. Some quote 28 per US dollar, which makes their products more expensive.

"It's worrisome given that the euro area is still faltering," he said.

Pornsilp Patcharintanakul, vice chairman of the Thai Chamber of Commerce, said it was a problem particularly for exporters in the food and agriculture industries, which demand high local content.

Urging the Bank of Thailand to monitor the currency movement closely, Federation of Thai Industries chairman Payungsak Chartsutipol said he understood that amid inflows all over Asia, currency appreciation was hard to contain. Still, the BOT can help by ensuring that the appreciation is in line with regional movements, to maintain Thailand's export competitiveness.

Hedging contracts are recommended, as currency volatility should heighten. Strengthening of the baht will be one of the persistent risks to exporters, he said.

Sarasin Viraphol, executive vice president of Charoen Pokphand Group, said that as long as the baht moved in line with regional currencies, exporters should not be too worried.

A strong baht will hurt some exporters that are already facing problems because of weak demand in Europe, the US and China. Commerce permanent secretary Vatcharee Vimuktayont said the ministry was ready to revise its export target of US$250 billion (Bt7.5 trillion), which would be a growth rate of 8-9 per cent.

Veteran economist Olarn Chaipravat said the BOT would need to step in only when the baht traded below 29.

Phairush Burapachaisri, secretary-general of the Board of Trade of Thailand, said the stronger baht would make energy imports cheaper, and relief measures for the export sector would be necessary when the currency dropped below 29.

Aside from pressuring the baht, capital inflows are also feared to cause asset price bubbles in Thailand.

On this, Pridi Daochai, first senior vice president of Kasikornbank, said the BOT had a tight grip on the banking sector, and this should ensure that the inflows would not cause asset bubbles. Despite high loan growth, he said it was in line with the central bank's targets, and there was no irregularity in the rate of non-performing loans. At KBank, NPLs will be kept below 2.4 per cent of outstanding loans.

According to HSBC and Standard Chartered Bank, Thailand, like other Asian nations, is expected to live with continued inflows throughout this year. In this scenario, draconian capital-control measures like those adopted by Thailand in 2006 and Malaysia in 1998 remain unlikely.

Targeted macro-prudential measures have already been implemented in markets such as Singapore and Hong Kong, where strong capital inflows have driven residential property prices to record highs.

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