The future trajectory of the Thai baht for the remainder of the year is crucial for local industries, especially following the Federal Reserve’s anticipated interest rate cut last Wednesday, which increases pressure on the Bank of Thailand’s Monetary Policy Committee (MPC) that has maintained stable rates since last year.
Executives in the manufacturing, export, and tourism sectors believe the immediate repercussions of the baht’s significant appreciation may not be drastic. However, they still urge the central bank to take action in light of the Fed’s indications of further rate reductions this year and into the next.
Bank of Thailand governor Sethaput Suthiwartnarueput remarked on Friday that while they are monitoring the situation, he emphasized that lowering rates would not solve the country’s debt problems and that the MPC does not need to conduct off-cycle meetings to discuss this matter.
RISING CONCERNS
Manufacturers are increasingly troubled about Thailand’s competitiveness as the baht’s value is expected to rise further after the Fed’s decision to cut interest rates. The Federation of Thai Industries (FTI) highlighted that the aggressive 0.5 percentage point reduction could significantly weaken the competitiveness of Thai products in export markets, making them more expensive compared to competing countries, according to FTI chairman Kriengkrai Thiennukul.
“The substantial 0.5 percentage point cut is detrimental to our exports,” he stated.
In a recent survey of 1,330 entrepreneurs across 46 industries conducted by the FTI in August, 40.6% mentioned the baht’s appreciation against the US dollar as a major concern. The baht strengthened from 36.46 to 34.92 against the dollar from July to August, raising alarm among manufacturers regarding export viability.
Mr. Kriengkrai now projects that exports will grow by only 1.5-2.5% this year, primarily driven by a rebound in the electronics sector during July. He noted that only specific sectors are expected to perform well in exports in 2024.
The FTI report indicates that among respondents, global economic conditions were the top concern at 67.5%, followed by the domestic economy at 65.2%, and oil price volatility at 61.3%. The Thai Industries Sentiment Index (TISI) fell to 87.7 points in August, down from 89.3 in July, attributed to the stagnant local economy, the strengthening baht, and severe flooding in northern Thailand.
Concerns about the global economy mainly stem from anticipated slowdowns, with deteriorating manufacturing purchasing managers’ indices (PMIs) reported in the US, Europe, Japan, and China for August.
CONSIDER A CUT
Sanan Angubolkul, chairman of the Thai Chamber of Commerce, noted that the baht has appreciated by 2% against the dollar year-to-date, making it the second-strongest currency in the region behind the ringgit, which has gained 6%. Despite the global economic slowdown, the chamber believes there are still growth opportunities for Thailand’s manufacturing sector.
Export items with potential include frozen and processed chicken, canned seafood, rubber, and rice, the chamber reported. They expect the central bank to aim to stabilize the baht in a range between 33.3 and 33.4 to the US dollar. Exporters should thus take measures to guard against exchange rate losses, as the baht’s appreciation could continue through the year’s end, fueled by investments from both fixed income and equity markets.
The coming tourism peak season in Thailand and the narrowing interest rate gap between US and Thai policy rates, following the Fed’s cut, are significant factors contributing to the baht’s strengthening.
In response to the Fed’s rate cut, the chamber is urging the MPC to consider lowering interest rates to reduce the baht’s value, which would enhance the competitiveness of exporters as well as operators in tourism and service sectors.
TOURISM EFFECT
Sorawong Thienthong, the Minister of Tourism and Sports, indicated that the strong baht may negatively impact tourism spending in Thailand and could hinder the government’s goal of achieving 3.5 trillion baht in tourism revenue.
He explained that the appreciating baht, compounded by global economic uncertainties, means foreign tourists may have less disposable income when visiting Thailand.
Thaneth Tantipiriyakij, president of the Phuket Tourist Association, acknowledged that while the strong baht could slightly affect tourist sentiment—leading to an estimated 10% increase in their spending on goods and services—he does not believe that tourists will choose alternate destinations over Thailand since Phuket remains a key spot offering quality products and value.
CEO of Onyx Hospitality Group, Yuthachai Charanachitta, shared insights on the strong baht, which he attributes to greater domestic political certainty and the Fed’s recent rate cut. He anticipates this situation will be short-lived until the US elections in November, predicting the Thai baht may weaken to 36 to the dollar thereafter.
Onyx Hotels already charge guests in baht and have sold rooms at the prevailing stronger
