Alarm as baht breaks 34 mark

The baht yesterday broke the psychological Bt34 barrier to reach a new 10-year high against the US dollar, prompting the Bank of Thai-land (BOT) to warn exporters not to panic as it has acted to stem the currency's rise.

The baht peaked at Bt33.98 to the dollar in afternoon trading yesterday, before closing slightly weaker at Bt34.00-Bt34.02.

Four business associations met officials at the central bank to discuss the currency's rise.

Thai Chamber of Commerce vice chairman Phongsak Assakul said after his meeting that exporters would be affected tremendously by loss of competitiveness if the currency rose above Bt34 to the greenback, particularly small and medium-sized enterprises and those in the agricultural and textile sectors.

He asked the BOT to keep the baht in line with regional currencies, particularly the Chinese yuan and Vietnamese dong. Thai exporters currently cannot make profits and are even making losses, which would have a big impact on the country's competitiveness in the long run, he said.

The chamber's chairman, Pramon Suthivongse, said he was greatly concerned about the strong baht but was optimistic that many sectors had continued to improve and compete with rivals.

"Anyway, exporters must inevitably adjust costs because they cannot hope for a weaker baht," he said.

BOT Governor Tarisa Wata-nagase urged exporters not to panic over the rise of the baht because investors would likely take advantage to import machinery for investment expansion at lower cost.

The investors' buying of dollars for bill payments would help balance demand for the baht in the foreign-exchange market, she said.

Regarding the Federation of Thai Industries' request to the central bank yesterday to curb the baht's appreciation, Tarisa said the BOT had already acted to curb the currency's rise.

The governor attributed the rise mainly to recent foreign inflows to the Stock Exchange of Thailand (SET), which would soon make a correction. Asked whether any portfolio investments were by ousted prime minister Thaksin Shinawatra, she said there were many portfolio investors who were not clearly identified.

Surapol Sritrakul, honorary treasurer of the Association of Thai Travel Agents, said the baht's appreciation had not hurt the tourism industry as much as security concerns among foreign tourists, particularly from Japan, due to the Kingdom's political instability and the violence in the southern provinces.

On the other hand, the strong baht would encourage more Thais to travel abroad due to the lower cost, he said.

Deputy Prime Minister and Industry Minister Kosit Panpiemras urged Thai businesses to make more investments, as these would require imports and help stem the baht's appreciation.

He said increased investment would make it easier to manage the baht.

Some industries have been affected by the currency hovering near Bt34 per dollar, but they need to adjust to the new environment, he added.

However, the Thai Bankers Association is confident the baht's strength will have a limited impact on exporters in the next three months.

"Most exporters have already struck forward contracts," said association chairman and Krung Thai Bank president Apisak Tantivoravong.

However, the magnitude of the effect on the following six months is unclear, he said.

"Thai exporters are good at adjusting. Their problem is not the rise of the baht but stability. As long as the baht is stable, it is fine," he added.

Finance Minister Chalongphob Sussangkarn yesterday insisted there were no irregularities behind the recent capital inflows into the bourse, which boosted the main SET Index as well as the baht.

He said the policy interest rate had probably hit bottom, as there were signs that other countries would jack up their rates.

Usara Wilaipich, senior economist Standard Chartered Bank (Thai), said the stronger baht would be a temporary phenomenon.

With the positive outlook for the economy, foreign capital is expected to flow into the stock exchange. However, the foreign bank expects the baht to weaken to Bt35 by the end of the year, and even further to around Bt36-Bt37 next year.

She said the economy was expected to stage a V-shaped recovery next year, driven by domestic consumption and investment by both the government and private sector. This would lead to large amounts of capital goods imports, pressuring the baht to weaken.

The bank has predicted that gross-domestic-product growth for next year will be 3.7-5.5 per cent, against projected growth of 3.8 per cent this year.

Anoma Srisukkasem,

Somruedi Banchongduang

The Nation