Bank of Thailand vows to step in if baht moves are unhinged
Thailand's central bank is ready to tackle excessive baht volatility by managing any moves 'unhinged' from its fundamentals, a deputy governor said, amid calls from local businesses to temper the currency's rally to help exports and tourism.
'We do look at the baht closely and try not to let it be too volatile,' Piti Disyatat said in an interview late on Thursday. 'If it's driven by non-fundamental reasons, portfolio perceptions, sentiment that's unhinged with macro fundamentals then we will reduce the volatility.'
The baht has surged about 5% this year, prompting some ministers and business groups to call for the central bank to weaken the currency to boost exports and tourism — the nation's biggest drivers of growth. The baht fell 0.3% to 32.57 per dollar on Friday, underperforming Asian peers.
Mr Piti's comments also come at a time when the nation is in trade talks with the US to lower a 36% tariff rate on its goods. President Donald Trump has long accused Asian countries for maintaining undervalued exchange rates that helped them amass trade surpluses with the US.
The Bank of Thailand (BoT) doesn't target any particular level or direction for the baht and its gain this year is in line with regional peers, Mr Piti said. The currency is little changed on a trade-weighted exchange-rate basis and hasn't hurt the country's export competitiveness, he said.
Thailand's exchange rate policy complies with the International Monetary Fund code when it comes to managing volatility so it shouldn't become an issue, Mr Piti said, when asked if tariff talks with the Trump administration included exchange rate.
While foreign-exchange intervention was one instrument at the central bank's disposal to maintain stability, the BoT mostly allows the flexible exchange regime to absorb shocks, Mr Piti said, adding 'we manage it only when we really have to'.
The baht's move in tandem with gold prices is not deemed as a fundamental reason, though it amplifies the currency's movements, he said.
A jump in Thailand's foreign reserves to a record $259.9 billion this month reflects valuation adjustments in its asset holdings, rather than the central bank mopping up additional dollars, Mr Piti said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bangkok Post
3 hours ago
- Bangkok Post
Americans cash out on gold as Asian investors bulk up
Americans who once snapped up gold bars and coins are offloading the assets while their Asian counterparts show no letup in buying, a sign that investors on opposite sides of the world have different outlooks on the global economy. The divergence suggests US residents who stash bars and coins at home or in safe deposit boxes — akin to stock market day traders — are more at ease about President Donald Trump's tariffs, rising government debt and geopolitical tensions. And, they're ready to cash in after the metal's stunning rally over the past two years. These American retail investors are bucking broader market trends in which more wealthy investors continue to aggressively buy the safe-haven asset, as do sovereign funds and central banks. Meanwhile, Asian gold buyers are eschewing jewellery for bars and coins. 'A lot of the retail investors (in the US) tend to be Republican-leaning. And whatever we say about the policy of tariffs, they like the idea of how Trump's doing,' said Philip Newman, managing director at the research consultancy Metals Focus Ltd. 'So from their point of view, there's less reason to buy gold.' The US market is so awash with bars and coins that some precious metals dealers have slashed their premiums to the lowest in six years to spur sales. And when investors sell, they're now looking at paying dealers a fee to offload gold. The bullion dealer Money Metals Exchange currently charges buyers of one-ounce American Eagle gold coins $20 over spot prices, compared with $175 four years ago. And sellers now need to pay about $20 for the online exchange to take the metal, whereas in 2021 they would have received an extra $121 for selling. The glut has led to a collapse in sales of newly minted bullion products, with the US Mint's American Eagle gold coins — a proxy for retail demand — tumbling more than 70% in May from the prior year. The demand for gold bars and coins has been falling for the past three years in North America and Western Europe while rising everywhere else in the world, with last year marking the biggest divergence on record in data going back to 2014, according to Metals Focus. That gap continued into the first quarter of 2025, driven predominately by the selloff in the US market, according to the consultancy. Meanwhile, demand for bars and coins rose 3% in the Asia-Pacific region in the first quarter, with the Chinese market registering a 12% year-on-year increase, according to the latest data from the World Gold Council. South Korea, Singapore, Malaysia and Indonesia all posted gains of more than 30%. Initial worries of China and Asia getting hit the hardest by Trump's tariffs led to 'super strong' demand for gold in the region, said Kenny Hu, a commodity strategist at Citigroup. Concerns about local currency depreciation also means gold remains the go-to asset for Asian investors who played a key role in the metal's rally since 2024. Investors in Southeast Asia lacking other options have started recognising gold as a strategic asset, said Brian Lan, managing director of GoldSilver Central, a Singapore-based precious metals dealer. 'Southeast Asians who have memories of the war understand that gold is a form of insurance during periods of uncertainty,' he said. In the US, profit taking is part of the equation given gold's stunning climb — up 59% since the beginning of 2024 to $3,274.33 an ounce on Friday. But Wall Street banks are split over whether the rally has ended. Goldman Sachs reaffirmed a $4,000 forecast by next year and Morgan Stanley expects $3,800 by the end of this year, while Citigroup sees prices dipping below $3,000 next year. 'When there's fear, they own more gold and less risk assets,' said Hu of Citigroup. 'And now maybe they're thinking things are actually fine. Tariffs are not that bad. Things will get negotiated out. Geopolitics eventually will de-escalate and US growth may be not that bad.'
Bangkok Post
15 hours ago
- Bangkok Post
Navigating twin crises and tightened monetary policy
Financial markets in Thailand are confronting an unprecedented twin crisis, as political uncertainty from the audio clip scandal converges with escalating Middle East tensions that have rattled global capital markets. This dual crisis severely affected Thailand's economy, with the Thai stock index plunging to its lowest point in five years, declining nearly 24% year-to-date to become the world's worst-performing equity market. Thailand's political crisis stems from the withdrawal of the Bhumjaithai Party and its 69 MPs from the government coalition, creating political uncertainty. As of Friday, political pressure had pushed the SET index down, testing the critical support level of 1,085 points. Our analysis identifies three main scenarios with varying economic implications. The first scenario involves immediate parliamentary dissolution, though we reduced the probability of this outcome as the government is likely to retain its majority. This scenario would result in GDP contracting by 0.5 percentage points due to disruption of the budget process -- both fiscal 2025 disbursement and passage of the 2026 budget. The second scenario, which we consider the base case with increased probability, involves a cabinet reshuffle followed by dissolution after the fiscal 2026 budget is passed, with the economic impact consisting of GDP shrinking by 0.3 percentage points. The third scenario considers resignation or removal of the prime minister due to governance issues, carrying a moderate probability and resulting in a growth slowdown of 0.3-0.5 percentage points. Under this scenario, the Bank of Thailand may need to accelerate interest rate cuts by 50 to 75 basis points to support the economy amid mounting pressure from anti-government demonstrations and various legal developments that could escalate the situation. The US strike on Iran's nuclear facilities on June 22 significantly altered the Middle East conflict landscape. Brent crude initially surged 5.7% to $81.40 per barrel before falling below $70 as immediate supply disruption fears subsided. The Israel-Iran conflict began to ease following a ceasefire announcement with US mediation. Analysts suggest Iran's military effectiveness may now be diminished, while the fragile domestic economy is experiencing inflation near 40%. The US is reportedly preparing to open negotiations with Iran next week, which requires monitoring. MIDEAST SCENARIOS We forecast the probability of three Middle East scenarios. The base scenario, with 40% probability, anticipates temporary oil price increases before a decline, resulting in Thai economic growth of 1.4% and inflation of 0.5%. The adverse scenario, also with 40% probability, involves oil prices sustained above $85 per barrel, leading to growth slowing to 1.2%, while inflation increases to 0.8%. The crisis scenario, with a 20% probability, assumes Iran decides to close the Strait of Hormuz, potentially pushing oil prices to $130 or $140, resulting in economic growth of only 1% and inflation reaching 1%. In Thailand, the central bank's Monetary Policy Committee (MPC) voted 6-1 this week to maintain the policy rate at 1.75%, with one member favouring a reduction to 1.50% to support the slowing economy. According to the MPC, Thailand's economy in the first half of 2025 will expand better than projected, driven by exports, particularly to the US. As a consequence, the regulator revised its full-year GDP growth forecast to 2.3% from 2.0% earlier. However, the central bank believes export momentum is temporary, with heavy frontloading of shipments to the US to avoid higher tariffs. The economy faces risks in the second half from US tariffs, weak domestic demand and declining consumption amid reduced household income and confidence. The 2026 economic growth forecast was downgraded to 1.7% from 1.8%. We believe Thailand's economy will slow significantly in the second half, risking a technical recession. Thailand faces substantial risk of higher US import tariffs compared with other trading partners. Government budget disbursement remains below target, and despite expectations of acceleration in the second half, including 115 billion baht in stimulus projects, disbursement is expected to remain delayed due to uncertainty about government stability, preventing the public sector from fully driving the economy at a time of weak private demand. Contracting credit will further pressure domestic demand. With inflation clearly below the central bank's 1-3% target range and with no signs of demand-side inflationary pressure, there is room for further monetary policy relaxation. We maintain our view that the central bank should cut the policy rate at least twice more this year to 1.25% to alleviate household and business interest burdens, reduce tight financial conditions, and support a stable demand recovery. If the regulator doesn't cut rates in the third quarter, we see delays potentially weakening the economy, ultimately requiring more aggressive rate cuts later and further increasing risks to future economic stability. In terms of investment strategy, the SET is expected to remain volatile amid negative domestic and external factors as outlined above. However, we believe the SET index below 1,100 points, representing a 2025 price/earnings ratio of less than 12 times, is appropriate for medium- to long-term investment through gradual accumulation. Our investment strategy remains "selective buy" across four key areas. First, we recommend defensive stocks with low volatility that are expected to resist external market turbulence, specifically DIF, BDMS and BCH. Second, quality dividend stocks from the SET50 with SETESG ratings of A or higher should be considered to generate short-term cash flow, as these companies are expected to pay interim dividends from first-half 2025 profits with yields exceeding 2%, particularly ADVANC, BBL and PTT. Third, earnings-play stocks with strong profit momentum deserve attention, as we expect normalised second-quarter 2025 profits to grow, with ADVANC, CPALL and BTG leading this category. Finally, for investors with a high risk tolerance seeking trading opportunities amid the Middle East conflict, we recommend stocks benefiting from rising oil prices, specifically PTT and PTTEP.
Bangkok Post
19 hours ago
- Bangkok Post
Trade deal optimism lifts Asian shares
RECAP: Most Asian stock markets rose on Friday, and a gauge of global equities reached another record high, on trade-deal optimism and increased expectations for US interest-rate cuts this year. Although the global backdrop looks positive, the Thai index dropped more than 2% to move below 1,100 points again as a high degree of local political uncertainty pressured the market. The SET index moved in a range of 1,053.79 and 1,117.64 points this week, before closing on Friday at 1,082.42, up 1.4% from the previous week, with daily turnover averaging 43.07 billion baht. Foreign investors were net buyers of 4.57 billion baht, followed by institutional investors at 2.44 billion and brokerage firms at 1.17 billion. Retail investors were net sellers of 8.18 billion baht. NEWSMAKERS: US Federal Reserve chairman Jerome Powell said the Fed is not in a rush to cut interest rates as it is waiting for more clarity on the impact of tariffs on inflation. The dollar declined amid rising concerns about the independence of the Fed. The Wall Street Journal reported that President Donald Trump has considered announcing a replacement for Mr Powell in September, aiming to undermine his position for the rest of a term that expires in May 2026. The White House denied the report. President Trump said the US would hold a meeting with Iran next week but cast doubt on the need for a diplomatic agreement on the country's nuclear programme. Fed governor Michelle Bowman said she would favour an interest rate cut at the next policy meeting in July so long as inflation pressures stay muted. US Commerce Secretary Howard Lutnick said the US and China have finalised a trade framework, which was "signed and sealed" two days ago. The US is likely to ease trade restrictions on China, especially in the tech sector, while Beijing will relax rules of rare earth exports. Oil prices pared some of the large declines they posted after the Israel-Iran ceasefire, with the market's focus shifting from the Mideast to US trade negotiations. Brent edged higher near $68 a barrel, still down more than 11% for the week. Russia's oil product exports dropped in June to the lowest in eight months amid extended work at refineries supplying Baltic ports, coupled with efforts to stabilise domestic fuel supplies, according to shipping data compiled by Bloomberg. The US consumer confidence index fell 5.5% to 93.0 in June from 98.4 a month earlier, reflecting concerns about inflation and geopolitical tensions, the Conference Board reported. Japanese service-sector inflation hit 3.3% in May, following a revised 3.4% increase in April. Non-financial outbound direct investment from China rose 2.3% year-on-year to $61.6 billion in the first five months of 2025, commerce ministry data showed. The new German budget calls for an increase in military spending to 3.5% of GDP by 2026, and more funding to improve giant infrastructure, as part of an investment push aimed at kick-starting the sluggish economy. Nvidia shares rose 4.3% to $154.31 on Wednesday, giving the chip giant a world-leading market cap of $3.77 trillion, overtaking Microsoft at $3.66 trillion. Germany's privacy regulator has warned Apple and Google that the Chinese AI service DeepSeek, available on their app stores, constitutes illegal content because it exposes users' data to Chinese authorities. Xiaomi Corp shares rose 8% to a record high after the smartphone maker drew strong initial orders for a $35,000 sport utility EV intended to compete with the Tesla Model Y in China. Mexico's central bank announced a fourth straight half-percentage-point cut to its benchmark interest rate to 8% to counter the effects of an expected global economic slowdown. Hong Kong's de-facto central bank spent more than US$1 billion propping up the exchange rate of the HK dollar, as it sought to defend a currency peg that has been strained by volatility in the greenback. Shell Plc said it has no intention of making a takeover offer for BP, refuting an earlier report that two of Europe's biggest companies were in active merger talks. Taiwan has told foreign investors to exit bets on the local dollar, taken through exchange-traded funds, as a 12% gain in its currency threatens its economy and companies. Malaysia's inflation rate rose 1.2% in May from a year earlier, the lowest in 51 months, largely attributed to a decline in global oil prices. The insurer FWD Group, backed by Hong Kong billionaire Richard Li, is looking to raise HK$3.5 billion (US$442 million) through a Hong Kong IPO. Vietnamese lawmakers have approved a plan to establish international financial centres in Ho Chi Minh City and Danang to attract investment and strengthen its global financial standing. Vietnamese Prime Minister Pham Minh Chinh said he expected a trade deal with the US before the July 9 expiration of a pause on imposing a 46% tariff. Finance Minister Pichai Chunhavajira said he would travel to the US for trade talks next week. He also denied reports that Washington had already decided to impose 18% tariffs on Thailand. The Bank of Thailand on Wednesday held its key interest rate unchanged as expected at 1.75%, saving its limited policy space as political uncertainty at home compounds global risks. The BoT lifted its GDP growth forecast for Thailand this year to 2.3% from a previous range of 1.3% to 2%, but lowered its 2026 projection to 1.7% from 1.8%. Roong Mallikamas, a deputy governor at the central bank, Vitai Ratanakorn, president of the Government Savings Bank, are the two finalists to become the next BoT governor. Finance Minister Pichai Chunhavajira will make the final decision, which requires cabinet approval. Shares of Airports of Thailand (AOT) fell on Friday after it confirmed that it had approved extended payment terms for the struggling duty-free giant King Power, which had sought to exit its concessions citing a drop in tourist numbers. Foreign tourist arrivals to June 22 fell 4.24% compared to the same period a year earlier, to about 16 million, the Ministry of Tourism and Sports said. Malaysia topped the table at 2.19 million visitors, followed by China with 2.17 million. The cabinet approved projects worth 115 billion baht, ranging from road building to tourism promotion, as the government seeks to spur the sluggish economy to offset the impact of US tariffs. The cabinet also approved a 1.75-billion-baht domestic tourism subsidy programme, expecting to generate 35 billion baht through an additional 2.67 million local trips during the low season. The Constitutional Court has scheduled a special session for July 1 to consider a Senate petition to remove Prime Minister Paetongtarn Shinawatra following the leak of her conversation with former Cambodian PM Hun Sen. It could suspend her pending a final ruling. The University of the Thai Chamber of Commerce (UTCC) has downgraded its 2025 GDP growth projection to 1.7% from 3%, reflecting escalating risks including US tariffs, the Israel-Iran conflict, border tensions and government instability. Car production in Thailand rose 10.3% in May from a year earlier, the first annual rise in 22 months helped by higher pickup truck output for export, the Federation of Thai Industries (FTI) said. In the first five months, output fell 7.8% year-on-year to 594,492 units. The Administrative Court rejected a petition from the Thai Consumer Council seeking an emergency inquiry and suspension order for 2100MHz and 2300MHz spectrum auctions by The National Broadcasting and Telecommunication Commission (NBTC). The auction will proceed as scheduled on June 29. The Thai Hotels Association asked the government to review the decision to raise the minimum wage to 400 baht a day from July 1, saying it would raise costs by 10-15% and have greater impact in provinces with fewer tourists. Central Retail Corp (CRC) has announced a plan to invest 45-47 billion baht over the next three years, said chief executive Suthisarn Chirathivat. More energy firms are venturing into the data centre business, with BCPG Plc, the power generation arm of Bangchak Corp, becoming the latest to co-invest in sustainable data centre development. COMING UP: On Monday, the UK announces quarterly GDP and Germany releases an inflation update. Tuesday brings euro zone inflation, a speech by Fed chair Jerome Powell and US manufacturing PMI. On Wednesday, the US reports oil inventories and China reports services PMI. On Thursday, the US reports initial jobless claims and non-manufacturing prices. On Friday, Germany releases monthly factory orders. Locally, the Thai General Insurance Association on Thursday holds a briefing on the industry outlook. On Friday, the Thai Bond Market Association discusses the market outlook. STOCKS TO WATCH: InnovestX Securities advises investors to monitor domestic political developments, including a potential no-confidence motion against the PM. Tensions along the Thai-Cambodian border add to the risk. Another factor to watch is the deadline for capital migration from long-term equity funds (LTF) to Thai ESG Extra funds on June 30, which could reduce support for the SET Index. InnovestX recommends BCPG at a fundamental price of 7.80 baht, BCP at 47 baht and ERW at 3 baht. Bualuang Securities forecasts a global economic slowdown in the third quarter, with a potential rebound in the fourth quarter. The recovery is expected to drive up demand and improve petrochemical product spreads. It recommends IVL and PTTGC as beneficiaries of the upcycle.
