Strong baht affects exports in Q4, difficult to receive orders, dragging down agricultural exports

Strong baht affects exports

The Thai baht has been moving rapidly and strongly in recent months, appreciating significantly. According to the Bank of Thailand and analysis by financial market experts, the baht’s appreciation is in line with the appreciation of other regional currencies, but the rapid and strong change could have a significant impact on Thailand’s export business.

The Monetary Policy Committee (MPC) meeting on August 21, 2024 voted 6 to 1 to maintain the policy interest rate at 2.50% per annum. The MPC assessed that the Thai economy expanded as expected and was supported by the tourism sector, while exports are gradually recovering.

Although private consumption has slowed down, it is also important to monitor the quality of loans. After the announcement of the results of the MPC meeting in the afternoon of August 21, 2024, the “baht” moved “slightly depreciated” at 34.30 baht per dollar and closed the market at 34.34 baht per dollar.

It was the weakest level of the day and had the highest appreciation of the day in the morning at 34.05 baht per dollar, reaching the highest appreciation level in almost 13 months (since late July 2023). While since the beginning of 2024, the baht (YTD) has “weakened” by only 0.2%, with the MPC stating that the baht has appreciated against the dollar recently, while Thai bond yields have adjusted in line with the direction of the United States.

Mr. Piti Disyatat, Secretary of the Monetary Policy Committee (MPC), revealed that the baht’s appreciation, when compared to the world, is considered to be within expectations or consistent with the previous baht’s depreciation, close to 36 baht per dollar. Therefore,

If compared since the beginning of the year, the current baht has not changed. However, the baht’s appreciation is mostly due to the weakening of the dollar, as the market sees the Fed cutting interest rates sooner or more than expected, and there are also some specific Thai factors, such as the increase in gold prices.

This has resulted in a large amount of gold exports, and over the past 2-3 days, with clarity from the government, the overall picture looks more stable. Therefore, the overall picture is considered to be moving in line with its peers, and there is reason to be concerned about the impact on exports in the 4th quarter.

Mr. Chaichan Charoensuk, President of the Thai National Shippers’ Council (TNSC), said that the TNSC is concerned about
The baht has appreciated rapidly, reaching 34.50 baht per dollar, which is considered to be faster and stronger than the value in July, which moved between 36-36.50 baht per dollar, an increase of 2 baht.

In the first half of 2024, Thai exports expanded by 2%, benefiting from the weaker baht amid external factors. Only the weaker “baht” was the strong point that allowed Thai exports to grow by 2%.

In addition, the continued appreciation of the baht is concerning for exports in the second half of the year because external risk factors remain, especially agricultural products, which Thailand performed well in the first half of the year, with agricultural exports expanding by 20%.

Also, if the baht strengthens in the second half of the year, it will be a sensitive point for Thai exports because agricultural products will not be the “hero” products that will support Thai exports in the following period. The impact will be clearly seen in the fourth quarter because the third quarter has already passed.

“Q4 is concerning because Thailand’s only strength is the weak baht, which will not happen again from now on. The appropriate baht value, not too strong or too weak, should be maintained at around 35-36 baht per dollar. Previously, the baht quickly appreciated to 32 baht per dollar, which already affected exporters.”

Mr. Chaichan said that the movement of the baht should move in line with competitors and should not move too fast. The current situation is considered to move very fast because when exporting goods, the selling price must be calculated because it takes 3 months to get the money back.

Exporters will have to bear the risk in this part. Therefore, exporters will have to be careful in accepting purchase orders that will be delivered in the next 3 months. And if the situation is like this, exporters will have to insure against exchange rate risk. As for having the government come in to take care of the baht value, it must be understood that…

Thailand has the management of the baht by the Bank of Thailand (BOT). There will be no intervention in the baht’s value. It will be left to the market mechanism because Thailand has already learned a lesson.

However, the BOT is requested to have strict measures to maintain the stability of the baht at a level that is conducive to exports or not significantly stronger than trading partners and competitors, including providing practical knowledge for entrepreneurs about measures and financial instruments to prevent risks from baht volatility.

Ms. Kanchana Chokpaisansin, Research Manager, Kasikorn Research Center Co., Ltd., said that the current exchange rate has continued to appreciate, with the strongest value of the day at 34.06 baht per dollar, which is considered the strongest in 13 months since July 2019. The baht’s appreciation began to be seen from July to August, when the baht appreciated quite quickly.

Most of this comes as investors see the Fed as likely to cut rates at its three remaining meetings this year.
Make the baht stronger against many regional currencies.

However, the appreciation of the baht, in addition to the appreciation of the dollar, which has a weaker sentiment, also comes from the price of gold in the world market that has continuously adjusted to a new record high (all-time high), which has resulted in the baht strengthening as well.

This also comes from foreign capital inflows that have continued to buy bonds, causing foreigners to have only 14.9 billion baht of net sales recently, compared from the beginning of the year to the present. The capital that has flowed out of the bond market the most is
77 billion baht in the previous period

This is because of the baht’s strengthening direction, causing the Kasikorn Research Center to adjust its view on the baht, with the baht strengthening at the end of the year at 34.50 baht per dollar, up from 36.00 baht per dollar.

Data source: Bangkokbiznews