Baht set to top emerging-market currencies in stormy 2018

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BANGKOK (Dec 13): Having a strong buffer in times of stress does pay off. Just look at the baht.

The Thai currency has declined 0.6% to 32.785 against the dollar this year as of 2:20pm in Bangkok Wednesday, the best performance among 22 major developing-economy currencies tracked by Bloomberg. A current-account surplus and ample foreign-exchange reserves helped offset headwinds from the Federal Reserve’s tightening path and escalating trade tension between the US and China.

Key Insights

  • Thailand has posted current-account surpluses every month since the end of September 2014. As a percentage of gross domestic product, the third-quarter balance of 7.7% is among the highest in Asia and compares with Taiwan’s 13%.
  • Customs exports also posted gains every months but two in 2017 and 2018, supporting demand for the Thai currency. Despite some signs of a slowdown, the tourism sector remains a major driver. Exports of goods and services account for about two-thirds of Southeast Asia’s second-largest economy.
  • Foreign reserves are at about US$203 billion, more than twice the amount the International Monetary Fund deems as adequate. Speculation that the Bank of Thailand next week will deliver its first interest-rate increase since 2011 has also bolstered the baht; the central bank’s monetary policy committee discussed "conditions and appropriate timing to begin normalizing monetary policy in the future," according to the minutes of the Nov 14 rate decision.
  • A combination of economic recovery and benign inflation was also supportive, with fund inflows to the bond market at US$9.2 billion this year through Dec 11. The finance ministry predicts economic growth of 4.5% for 2018, following 3.9% expansion in 2017. Inflation was 0.94% in November, with the commerce ministry saying a rate of about 1% is right for the economy.
  • “There are not many countries like Thailand where the local economy is getting better but inflation is benign,” Jitipol Puksamatanan, Bangkok-based chief strategist at Krung Thai Bank Pcl, said. “This characteristic could be considered as the best of breed among EM currencies.” He expects the baht to strengthen to 30.7 per dollar by end-2019.