Thai exporters warned as baht to appreciate

Roong Sanguanruang, chief market analyst of the bank, said at a Thailand Market Association seminar on interest rates and the foreign exchange outlook yesterday that the baht was expected to move in the range of 30.7532.25 to the dollar in middle of next year. Earlier, Kasikornbank's treasurer expected the baht to end this year at 31 per dollar.

Coupled with the appreciation is greater volatility, Roong said. Movement of the U.S. dollar was harder to predict because of the interaction of two main market forces. One predicts the exchange rate by guessing what the U.S. Federal Reserve will do. The other force engages in risk taking. The market participants often interpret the same news differently, causing fluctuating movements of the exchange rate, she said.

The Chinese yuan is expected to continue to appreciate gradually, as the Chinese government tries to prevent export shocks caused by any sharp rise of its currency.

Other regional currencies will also appreciate in tandem. For example, the Indonesia rupiah and the Malaysia ringgit rose almost 10 percent in one year against the dollar as of Aug. 6, Roong said, while the baht rose about 5 percent. But in the past few weeks the baht has risen sharply, a bit late compared with other currencies, she said. The potential for high growth has contributed to the strength of currencies in emerging Asia.

Roong also said the Bank of Thailand might increase its policy rate from 1.5 percent to 2 percent by the end of this year to curb inflation. The central bank would, however, be cautious about raising the rate because of the risk of an economic slowdown and political uncertainty.

The yen will also rise in the next 12 months but it will weaken in the long run because of persisting deflationary tendencies in Japan, she said.

Sompop Manarungsan, president of the Panyapiwat Institute of Technology, said exporters of labor intensive products would be hit hard by low margins. “A 10percent baht rise could make many exporters lose money,” he said.

New Central Bank Governor Prasarn Trairatvorakul will face a challenge over how to manage the baht as investors flee the U.S. market and move their money into Asia, which recently has caused a sharp rise in the Thai stock market, he said.

The global economy also faces the risk of a bond bubble crisis that could devastate the global economy as the subprime crisis did in 2008, he warned. Bond prices have increased and driven down yields as investors seek safe havens.

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