Thai baht (THB) has been weakening against USD as the rate is THB 35.75 per USD and many experts expect it to go over THB 36 per USD soon. THB is at its weakest since the FED rate hike at THB 37 per USD in September 2022 and before the financial crisis in 2006. The weakest two-decade record was THB 45 per USD in 2001 and the strongest was THB 29 per USD in 2003. Many speculate a number of reasons why THB has been weakened lately.
Foreign factors are the first reason many could think of. Foreign investor has been selling Thai stocks and treasuries lately as Thailand slowly recovers from the pandemic, while one of Thailand economic engines are tourism that has been showing a good sign lately as foreign tourists starting to come back over two million on monthly arrivals and would reach the number before the pandemic in the next year or two of over 3 to 4 million monthly arrivals, according to Airport of Thailand and Ministry of Tourism estimates.
Another engine of the Thai economy is exports. Thai exports had an exponential growth after 2002 from $5 billion to $15 billion before the 2008 financial crisis, and has been struggling around $20 billion ever since. After the pandemic, there were two $28 billion export spikes in early 2022 and 2023, but had fallen along with global demand.
Even Thailand did not receive much impact from covid but the lesser imports from US, EU and China are impacting the economy. The currently weak THB might also contribute to this problem as well. While USD and EUR are appreciating, there’ll be a chance for exporters as Thai goods become cheaper, incentivizing demand. But in contrast, the depreciating CNY under THB 5 per CNY will make China import less from Thais.
Foreign investors could see less positive outlook on the Thai economy and the slower recovery on Thai business as Foreign Direct Investment (FDI) has been under THB 200 billion since 2014, while Stock Exchange of Thailand index (SET) is still below the pre-pandemic level. On the other hand, the US S&P 500 rose to 1.5 times the level before the pandemic.
SET 50 Index is currently around 925, while its peak was at 1,200 in 2018. The lowest point is under 800 when the pandemic started, around 300 during the 2008 financial crisis and 200 after the Tom Yum Kung crisis and Dot com bubble burst.
Meanwhile, the Bank of Thailand (BoT) is weighing against a rate hike to fight global inflation for now even with lower food prices compared to developed countries. However, the rising crude oil price over $90 per barrel or at least 1.5 times the usual is dealing a heavy blow to the inflation problem and Thai economy since the kingdom needs oil imports to supply the country.
BoT rate was recently around 2%, while many countries rates have gone up along with the US and some already surged beyond 5%. The Thai 10-year government treasury/bond yield was around 4% to 6% before 2008 and hardly reaches 4% ever since. The lowest rate of Thai 10-year yield was almost 1% during the pandemic, hence bond investors will be attracted to a higher rate and sell Thai treasuries for other countries, causing the outflow and weakening the THB in the process.
Lastly, the political factor in Thailand is also weakening the economy in the long run as the latest post-election process had three months of uncertainty in a uniqueness of Thai politics that resulted in a government with populist policies.
Thai native would benefit from those policies in the short run but many fear the long run side effect would impact the government debt and its source of funds.