Kiatnakin Phatra Securities (KKPS) notes in its latest analysis that Thailand’s baht (THB) continues to confound market observers, maintaining its strength against regional currencies despite a marked narrowing in the nation’s current account surplus. This resilience is increasingly difficult to justify using traditional trade-based macroeconomic frameworks.
Prior to the COVID-19 pandemic, Thailand enjoyed a current account surplus approaching 10% of GDP. Fast forward to early 2026, that surplus has compressed sharply, hovering around 1.5-2.0% of GDP. Under standard economic theory, a shrinking surplus and a negative interest rate differential should exert downward pressure on the currency. Yet, the baht continues to outperform its regional peers on a nominal effective exchange rate (NEER) basis.
Several cyclical elements provide partial explanations for this phenomenon. Thailand’s highly financialized gold market, for example, can lead to substantial USD selling against the baht when global gold prices rise, resulting in episodic bursts of currency appreciation.
Moreover, low domestic inflation has kept real policy interest rates higher than they would appear after nominal rate cuts, and negative money supply growth due to declining loan growth is acting as a de facto tightening mechanism. These short-term supports may help explain periods of volatility and the baht’s relative attractiveness for carry trades, but they do not fully account for its persistent strength.
KKPS identifies a more fundamental issue rooted in the structure of Thailand’s financial account: liquidity inflows are not being consistently recycled offshore. While Thai institutions have gradually increased their foreign portfolio allocations, outbound investment is still hampered by regulatory restrictions, a strong bias towards domestic assets (home bias), and high hedge ratios, which minimize the FX impact.
Consequently, there remains a structural balance-of-payments surplus—a situation that often necessitates repeated FX intervention by authorities and keeps liquidity “trapped” within the domestic system.
Such persistent currency appreciation can have unintended negative effects on the real economy. As the baht strengthens beyond its manufacturing peers, export margins are pressured, and Thailand’s tourism sector becomes less competitive internationally.
Over time, this risks creating a feedback loop that chips away at the current account surplus—the very anchor of the baht’s historic strength—raising concerns about a scenario akin to “Dutch Disease,” where currency overvaluation leads to a hollowing out of key economic sectors.
Unless Thailand undertakes meaningful reforms to broaden outbound investment channels and facilitate capital recycling, the baht’s structural appreciation bias is likely to endure. However, KKPS warns that this should not be interpreted as a clear sign of economic health.
Rather, it is symptomatic of underlying imbalances that, if left unaddressed, may eventually force a sharp adjustment should Thailand’s competitiveness and trade fundamentals further deteriorate.
