The weakening of baht could soon end as Thailand moves to welcome back tourists and the central bank edged closer to hiking interest rates.
Thai baht dropped to a fresh 5-year low at 35.57 against the US greenback last week following a brutal sell-off in Thai stocks and bonds by foreign investors, marking a fourth consecutive week of depreciation.
However, the baht opened at 35.46 against dollar today, strengthening from Friday’s closing of 35.49. This is in line with the movement of global currencies as the dollar dropped after investors shrug off Federal Reserve’s interest rate hike concerns.
According to Bloomberg, the baht’s 6 percent drop against the dollar this quarter is its worst since Covid-19 in early 2020. This coincides with the country’s biggest current account deficit in nine years and record-low borrowing costs.
Bloomberg, however, suggested that with the Bank of Thailand’s policy board growing more hawkish after a split policy rate decision at the June meeting and the government lifting restrictions to boost foreign visitor revenue, the Thai baht could see a brighter outlook.
The Monetary Policy Committee (MPC) at its June meeting voted 4 to 3 to keep the policy rate at 0.50 percent despite rising inflation. Three members voted to raise the policy rate by 0.25 percentage point.
“Once we get more dollar softness, an increase in tourism inflows or a Bank of Thailand hike, the baht should arrest declines and we could even see a good rally,” Mr Galvin Chia, an emerging markets strategist at Natwest Markets in Singapore, told Bloombeg. “It’s a growth laggard with room for catch-up.”
With the scrapping of Thailand Pass beginning July, the authorities expect about 1.5 million international tourists a month for the remainder of this year, compared with fewer than 300,000 in April.
Before the pandemic, the tourist industry accounted for almost one-fifth of the nation’s GDP, therefore this is likely to have a significant impact on the baht, said Bloomberg.
Local analysts expect the baht to trade within the range of 35.25 to 35.70 per dollar this week. While the Thai baht is appreciated, it remains weaker than other regional currencies.