Economists are pointing to a combination of factors that are applying pressure on the baht’s appreciation in the long run. The Thai economy’s diminished potential growth, a reduced current account surplus, and escalating capital outflows are all contributing to this pressure.
Roong Sanguanruang, senior vice president for global markets planning at Bank of Ayudhya (Krungsri), highlighted that the baht is facing constraints in its ability to strengthen against the dollar due to the country’s lower growth potential. Thailand’s current account surplus has been decreasing, and there has been a rise in foreign net capital outflows.
Despite these challenges, Roong mentioned a few internal factors that have supported the baht post-pandemic, such as an improved current account surplus driven by the return of foreign tourists and solid international reserves. These elements have helped maintain the strength of the local currency even in the face of a stronger dollar.
While the pandemic initially led to a temporary deficit in Thailand’s current account balance due to the absence of foreign tourists, the situation improved as tourism recovered and the current account returned to surplus. However, Roong cautioned that the current account surplus is anticipated to diminish compared to pre-pandemic levels due to underlying structural issues within Thailand, which could restrict the baht’s potential for appreciation given the economy’s lackluster growth, ongoing capital outflows, and evolving global trade dynamics.
Roong also predicted that the baht will fluctuate between 34.50 and 36.75 baht to the dollar in the final quarter of the year, with the Bank of Thailand’s Monetary Policy Committee likely to maintain its policy rate at 2.5% throughout the year.
Supavud Saicheua, an advisor at Kiatnakin Phatra Financial Group (KKP), expects the US dollar to continue strengthening against various currencies, including the baht, following the US economic outlook. This trend is projected to exert pressure on the baht’s position compared to the US dollar.
Supavud further discussed the expectations surrounding the US Federal Reserve’s policy rate and the potential impact of the US presidential election on economic policies. This includes projections of higher inflation rates driven by specific policy measures, which could influence foreign capital flows into US markets and impact the Thai market with continued net foreign capital outflows.
In summary, the challenges presented by the current economic landscape suggest a complex future for the baht’s valuation against the dollar, with various internal and external factors at play that could influence its trajectory.
