faint on a tightrope

A man walks past a currency exchange booth in Bangkok on May 19.  Somchai Bomlard

A man walks past a currency exchange booth in Bangkok on May 19. Somchai Bomlard

Industry leaders have urged the government to manage the baht carefully to maintain its value at a rate that benefits both importers and exporters.

The baht was valued at 34.62 against the US dollar as of May 9, a decline of 3.4% since the beginning of the year, its lowest price in five years.

The decline is attributed to the conflict between Russia and Ukraine that continues to raise commodity prices and inflation, the recent US Federal Reserve rate hike, the worsening epidemic in China and accompanying challenges to supply and shipping chains, Bon Panishipipul, markets strategist at Krungthai Bank, said earlier.

The depreciation of the baht is a boon for the tourism and export sectors, but it may affect other sectors that depend on imports of key raw materials.

An employee calculates bundles of 1,000 baht banknotes. Epichart Ginacol

optimum value

The Federation of Thai Industries (FTI) said the weaker baht has some advantages, but the government must carefully manage the demand and supply of the baht to maintain its value at a rate that benefits both importers and exporters.

Kriengkrai Thiennukul, the head of the FTI, did not offer adequate value, but warned that the recent decline in the value of the US dollar threatens to deal another blow to the faltering economy.

Although exporters can benefit from the weak baht, importers of oil and some key raw materials will bear the brunt as they have to pay more to import these products, which are currently too expensive or scarce as a result of the Russo-Ukrainian war. She said.

Small and Medium Enterprises (SMEs) will be affected the most by a baht depreciation.

“We are concerned about SMEs because they have to import raw materials and their sales are limited to the local market,” said Mr. Kriengkrai.

“They will face higher production costs and will need to put in place risk management plans.”

Many companies deal with the shortage of raw materials by stocking or searching for these materials from different countries. He said they are concerned that continued economic uncertainty will lead to severe disruption to global supply chains.

Dubbed the “factory of the world”, China may find its raw material exports falter if Beijing implements more lockdown measures to contain the spread of the virus, while the impact of the Russia-Ukrainian war and sanctions on Russia creates another drag on trade, Mr. Kriengkrai said.

He said that if the Thai government can’t deal with foreign exchange fluctuations, many Thai manufacturers will face new economic problems, deteriorating their financial situation.

Mr Kriengkrai said that the baht usually falls and rises within a range against the dollar, but authorities must ensure that fluctuations are in line with the currencies of neighboring countries to maintain Thai competitiveness in the global market.

A woman collects banknotes at the Bangkok Bank headquarters on Silom Road. Somchai Bomlard

Continuing to rise

Amonthep Chawla, Head of Research at CIMB Thai Bank (CIMBT), expects the US dollar to continue to rise relative to other currencies including the baht because the Fed will continue to raise interest rates throughout this year.

The Fed is expected to raise the interest rate by another 50 basis points in both June and July. After that, the degree to which interest rates rise depends on the rate of inflation being contained, Amonthep said.

The Fed raised interest rates by 50 basis points in May, the highest rise in 22 years after the US inflation rate rose to 8.3% in March, its highest level in 40 years.

He said the US inflation rate briefly fell to 8.1% in April, so the Fed’s rate hike in the second half of the year should not be as high as 75 basis points.

Mr. Amunthep said the wide spread between the Fed’s policy rate and other central banks including the Bank of Thailand will affect the flow of foreign capital into US markets, especially from emerging markets such as Thailand.

Such a scenario will support the rise of the US dollar compared to other currencies.

CIMBT expects the baht to hover around 34.50 to the dollar in the middle of this year, and to gradually rise in the second half, buoyed by tourism income in line with the improvement in overseas arrivals.

However, the continuation of the war between Russia and Ukraine is a major risk factor that exacerbates the uncertainty for the economy, financial markets, inflation rate and energy prices worldwide.

He said that if large interest rate increases by the Fed cannot bring down the inflation rate, the baht could weaken further than current expectations.

According to Kasikorn Research Center, the depreciation of the baht is normal and not particularly alarming because it was caused by external factors and is in line with most Asian currencies, which have fallen due to fears that the Federal Reserve will implement tighter monetary policy to contain rising US inflation. .

The research house believes that the Bank of Thailand will be able to mitigate any serious effects from the baht weakness as it is closely monitoring the situation.

Kasikornbank sees the baht moving in the range of 34.20-35.00 baht per dollar this month.

Crongsry Securities said export stocks such as Thai Union Group (TU), Asian Securities Corporation (ASIAN), GFPT, KCE Electronics (KCE) and Hana Microelectronics (HANA) would benefit from lackluster weakness.

An employee presents a forex panel at the currency exchange. Somchai Bomlard

Favorable rates

Chichan Charyunsuk, president of the Thai National Shippers Council, said responsible agencies should help manage baht at an appropriate rate to maintain export competitiveness.

“About 34.50 baht per US dollar is the most suitable price for exporters. We feel confident that Thai exports can be competitive compared to products priced in other currencies,” he said.

“The appropriate range for the baht is 33.50 to 34.50 per US dollar. If the currency depreciates to 35 baht, it will negatively affect imports, resulting in expensive imported goods.”

According to Mr. Chaichan, the government has to take into consideration the concerns of both exporters and importers in trying to reach an appropriate rate to mitigate the impact on the economy.

A man and woman walk past the currency exchange booth at the Kbank in Bangkok on Thursday, May 19, 2022. Somchai Poomlard

cost pressure

Somsak Bigthavipurndij, CEO of IT distributor VST ECS in Thailand, said baht weakness is raising the cost of imported technology products, which are already short on chips.

Mr. Somsak said the shortage of chips had caused the price of IT products to increase, particularly high-end items such as networking, storage and cybersecurity devices.

He said the company is managing the risk by hedging the currency with banks and discussing the matter with suppliers.

For government projects, the company will try to stabilize exchange rates with suppliers for a period of 90 days, Mr. Somsak said.

“For the IT consumer segment, notebooks saw an average price hike of 1,000-2,000 baht due to the lack of chips, but we didn’t raise our prices because we ordered pre-consumer products,” he said.

Somsak urged the Bank of Thailand to intervene to prevent the currency from falling to 35-36 baht per dollar, which would also increase fuel costs.

“We offer free delivery services to sellers. If a weakening baht eventually leads to a rise in fuel costs, we may ask sellers to absorb this in the short term because logistics providers will increase their transportation fees,” he said.

According to Mr. Somsak, the company is maintaining its business growth this year due to increased demand for IT products, particularly from companies that are placing orders quickly based on fears of shortages.

“If they delay making a decision, the products they want may not be available at the time they need to use them,” he said.

Foreigners exchange currency at the Travelex kiosk. Somchai Bomlard

Travel Catalyst

Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents, said a lower baht definitely benefits tourism as tourists can spend less on the same products and services while traveling in Thailand.

Sesdefacher said the promise of a cheaper trip could persuade tourists to travel, which could help speed up recovery from the tourism slump of the past two years.

He said that although the prices of consumer goods in Thailand are more expensive due to inflation, tourists who stay for 5-10 days will not be alarmed by the rising costs.

However, the economies of some tourism source markets are still not as healthy as they were before the pandemic due to the impact of global outbreaks, which could limit arrivals, Mr Sisdivachr said.

He said other factors to watch include the conflict between Russia and Ukraine and the constant threat of inflation, which directly affects the travel sentiment of foreign tourists.

“The number of travelers has gradually increased after further easing of travel restrictions,” said Mr. Sesdewascher. “The outlook for the tourism sector may not improve overnight just based on a lackluster depreciation.”

He said that the national financial situation is quite stable, which will limit the amount of depreciation of the baht in the medium term. Mr. Sisdivachr said Thailand is not in the same position as it was during the 1997 “tom yum kung” crisis, in which the baht was attacked and its value plummeted to over 50 against the dollar.

He advised tourism operators to monitor the currency situation.

Decreasing the value of the baht will help speed up travel decisions and create more jobs and revenue for operators serving the inland market, said Phishit Prakopgosol, Vice President of the Tourism Board of Thailand.

This could lead to short-term benefit into the middle of the year, Fichet said, but companies will face a larger impact from higher oil prices, which could be exacerbated if energy import costs increase currency depreciation.

Foreign exchange rates are displayed in the currency exchange kiosk. Somchai Bomlard

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