The baht still has room to strengthen against the US dollar despite its near 8-per-cent appreciation so far this year, according to bank treasurers.

They attribute the continued hike to the weakening of the greenback against regional currencies, as well as the continued flow of capital into Thailand and other countries in the region.

In this environment, it is likely the baht's exchange rate will hit 37 per dollar soon.

Satian Tantanasarit, chief of treasury markets at TMB Bank, said last week that the baht's value was likely to appreciate further to 35-36 per dollar this year.

He said the Chinese yuan was also likely to strengthen against the dollar by an additional 7-8 per cent this year, which would consequently make other regional currencies stronger.

In addition, the Asian bond and equity markets have become more attractive for foreign investors, who are likely to inject more money into the region.

Satian believes that as all Asian currencies have been strengthening vis a vis the dollar, Thai exports as well as the overall economy should not be adversely affected by the baht's appreciation, although the Thai unit has been slightly stronger than other regional currencies.

Songpol Chevapanyaroj, Kasikornbank's capital markets business head, said last week that the baht was likely to touch 37 per dollar in the near future.

He said the dollar was expected to depreciate further as recent economic indicators in the United States have been disappointing, particularly home-sales numbers.

Songpol believes that most Thai exporters, especially larger companies, have already covered their foreign-exchange risk by hedging and are therefore unlikely to be greatly affected by the stronger baht.

However, he said that if the baht were to appreciate further - to more than 10 per cent against the dollar since the end of last year - exporters would really begin to feel the pinch. He said firms with margins of less than 10 per cent would then be hit the most.

The strong baht has become a hot issue this month, having strengthened below 38 to six-year highs against the dollar. At one point last week it hit 37.71. Many fear the appreciation will damage export competitiveness at a time when exports remain the only major engine driving the Thai economy.

The local unit's strength is due in part to a proactive interest-rate policy by the Bank of Thailand, which has raised interest rates by 350 basis points over the past 18 months, in line with increases in the US Federal Funds rate.

Improved external accounts have also aided the baht. Thailand has seen a recovery in its current account, as exports have picked up pace again and tourist arrivals have recovered following the December 2004 tsunami.

Praphad Photivorakhun, outgoing chairman of the Federation of Thai Industries, said last week that exporter-manufacturers in all sectors had already suffered from the appreciation, although the extent depended on the ratio of their import content. Imports now cheaper because of the stronger baht have reduced the export losses for many companies.

Exporters, meanwhile, have complained that the stronger baht has begun to hit them in the pocket. They maintain they have suffered losses of 5-7 per cent from currency movements in the past month.

Banthun Wongsilachote, a member of the Board of Trade, said last week that the baht's appreciation was irregular as it had outpaced that of other regional currencies. He said there were signs of currency speculation and called on the Bank of Thailand to act to bring the baht's value down.

Despite all this, the Bank of Thailand has been relatively silent on the issue, with only deputy governor, Bandid Nijathaworn, cautioning on "too fast" an appreciation of the local unit.

The central bank's chief economist, Atchana Waiquamdee, said last week in an interview with The Nation that the bank was closely monitoring the situation to determine whether the baht was coming under speculative pressure.

She insisted that the situation remained normal, as most of the inflows went to the stock exchange, in line with what was happening across the region. The first round of Thai inflow was for the purchase of Shin Corp Plc, and the second was when political tensions were diffused.

While the baht appreciated 7.4 per cent between January 1 and April 18, the main Stock Exchange of Thailand index also rose, by 16.1 per cent in dollar terms (to April 19).

This compares with Indonesia, where the rupiah appreciated 8.5 per cent as of April 18, and the main stock index increased 38.1 per cent in dollar terms.

"Obviously the Thai baht's appreciation and the increase in the SET Index still lag behind Indonesia," Atchana said, hinting that more capital could flow into the Thai market, thus pushing up both the baht and the stock index.

She acknowledged that in a free-flow capital environment it was much more difficult to tell whether the inflows were meant for speculative or investment purposes.

Somruedi Banchongduang,

Achara Deboonme

The Nation