The baht is projected to weaken, reaching 34.50 per US dollar by the end of 2024, and further declining to 35.50 in 2025 as new US government policies are expected to exert pressure on the yuan, according to Kasikorn Research Center (K-Research).
On Thursday, the Thai currency slipped to a three-month low of 34.61 against the dollar, down from Wednesday’s close of 34.20, as the dollar and US bond yields gained strength following the Federal Reserve’s overnight interest rate reduction of 25 basis points.
The Bank of Thailand’s Monetary Policy Committee decided to maintain its policy rate at 2.25% on Wednesday.
“Despite the Fed’s rate cut to a range of 4.25-4.50%, which was anticipated, a hawkish statement from the central bank and its revised growth forecast for the US economy in 2025 have bolstered the dollar, causing various Asian currencies, including the baht, to depreciate against it,” noted Kanjana Chockpisansin, head of the research, banking, and financial sector at K-Research.
Fed officials now expect only two rate cuts next year, a reduction from the four anticipated back in September. In Thailand, the market predicts two rate cuts in 2025, according to Ms. Kanjana.
“The current trends favor a strengthening dollar, putting continued pressure on the baht to depreciate,” she stated, reiterating K-Research’s projection of an exchange rate of 34.50 baht per dollar by the end of 2024.
Year-to-date, the baht has weakened by 1.2% from a rate of 34.14 at the end of 2023. Similarly, the Chinese yuan and Japanese yen have depreciated by 2.7% and 9.3%, respectively, while the South Korean won experienced the most significant decline at 11%. The Malaysian ringgit is the only Asian currency to appreciate against the dollar, gaining 2%.
Looking ahead to 2025, Ms. Kanjana suggested that the yuan is likely to weaken due to the slowing economy in mainland China. Chinese authorities have indicated that they may permit a weaker yuan in 2025 in anticipation of increased US trade tariffs as Donald Trump potentially returns to the presidency.
K-Research warns that the baht will be adversely affected by movements in the yuan, predicting a value of 35.50 to the dollar by the end of 2025.
Asian stock markets, including those in Thailand, fell following the Fed’s forecast for fewer interest rate cuts in the coming year. The yen weakened past the 155 threshold against the dollar, as the Bank of Japan opted not to raise borrowing costs in its recent meeting.
Gold prices declined to nearly US$2,600 per ounce, while Bitcoin remained stable above $100,000.
Pipat Luengnaruemitchai, an emerging Asia economist at BofA Securities, anticipates three rate cuts of 25 basis points each by the Bank of Thailand in 2025, starting in the second quarter, bringing the policy rate down to levels seen from 2015 to 2018.
“We continue to assert that the current monetary policy stance is too tight in light of the inflation rate. Rate cuts could help ease financial conditions, given the contraction in loan growth, improving asset quality, and weakening domestic demand,” he commented.
