The Bank of Thailand is prioritizing domestic factors in its considerations for policy rate adjustments, rather than reacting to the recent rate cut by the US Federal Reserve, as stated by the central bank’s governor.
During a symposium on Friday, Governor Sethaput Suthiwartnarueput explained that the Monetary Policy Committee typically focuses on three key domestic elements: economic growth, inflation, and the stability of the financial system. These factors form the basis of the bank’s outlook-dependent monetary policy approach.
In terms of the current outlook, both economic growth and inflation are aligning with the central bank’s present evaluations. However, credit tightening throughout the financial system has progressed more rapidly than anticipated, largely due to increasing credit risk linked to declining asset quality.
In response to the Federal Reserve’s 50 basis point cut on Wednesday, Mr. Sethaput remarked that this move was widely anticipated by the market, with investors in both the money and capital markets already adjusting their expectations accordingly. He indicated that the impact of this rate cut on the Thai economy would be minimal, despite the fact that the baht has strengthened as the US dollar has weakened.
“While the baht’s fluctuations are in line with those of other regional currencies, it has displayed greater volatility against the dollar compared to its counterparts,” noted Mr. Sethaput. He added that the baht’s appreciation against the dollar aligns more closely with the South Korean won rather than the Malaysian ringgit or Indonesian rupiah, as was previously observed.
When analyzing the year-to-date volatility of Asian currencies against the dollar, the baht has a volatility rate of 7.5%, followed by the South Korean won at 7.2%, the ringgit at 5.8%, the rupiah at 5.5%, and the Philippine peso at 4.7%.
Thus far, the baht has appreciated by 2.4% against the USD, ranking just behind the ringgit, which has seen an 8% gain. In contrast, the Singapore dollar and Indonesian rupiah have strengthened by 1.9% and 0.8%, respectively, while the South Korean won, Taiwanese dollar, and Philippine peso have experienced depreciation of 4.3%, 3.1%, and 0.5%, respectively.
Mr. Sethaput pointed out that the baht shows a stronger correlation with gold prices than with other regional currencies. With global gold prices reaching record highs, he noted that the baht’s movement has been more influenced by these changes than those of its regional peers.
The central bank is closely monitoring the baht’s volatility, particularly against the dollar, and stands ready to intervene if necessary, according to Mr. Sethaput. At this stage, the central bank remains mostly unperturbed, as the baht’s fluctuations seem to be largely driven by the weakness of the dollar.
“In light of the increased uncertainties in the money and capital markets, we are also vigilant regarding potential speculative pressures from hot money flows, but we do not foresee any significant risks at this time,” he mentioned.
So far this year, the outflow of foreign capital from Thailand’s bond and capital markets has shown improvement compared to 2023. Net foreign capital outflows totaled $9.9 billion in 2023, whereas the current total has decreased to $2.2 billion year-to-date, according to Mr. Sethaput.
