As the Thai baht headed for a level not seen since late September 2006, questions arose over the Bank of Thailand’s (BoT) statement that the loss of 1.35 trillion baht from international reserves was not a “revaluation” of assets.
Is the central bank actively supporting the currency to keep it artificially stronger than it needs to be?
Earlier this week, the BoT revealed that Thailand’s reserves stood at a staggering US$240 billion, up from US$278 billion seen earlier this year.
The BoT explained that the reason for the decline was the repricing of all assets, as most of the assets it held in its diversified portfolio were depreciating due to the strengthening of the US dollar against all currencies in the world.
The rise in interest rates in the United States has prompted the US dollar to strengthen to levels not seen in more than a decade, causing many countries to scramble to prevent their currencies from depreciating.
This year, the Thai baht has fallen around 9% against the US dollar and was trading at 36.96 to the dollar early this morning.
See: THB Thai Baht rate
This level has not been broken since the end of September 2006 and has already exceeded the level of 36.95 seen in mid-July of this year.
“The BoT did not say where the reduction in reserves came from, but in my view it is equally divided between interventions and revaluations,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra.
A necessary intervention to support the economy
If the BoT uses even half of the $38 billion intervention to support the Thai baht, that means the central bank used almost 700 billion baht to help the baht not weaken further.
Many economists say that the Thai baht has been artificially strong for a long time, due to a weak economy that only started to recover after the country’s borders opened in July 2022.
Economists say one of the reasons for the intervention may be to support the economy and ease sentiment.
Thailand, which relies heavily on imports for many of its products, whether petroleum or other products, needs to keep the Thai baht at a certain level to avoid currency dumping.
Thailand, like other countries, is facing a surge in inflation due to rising oil prices and failure to intervene would have meant that the Thai baht would have exceeded 37 baht to the dollar.
That decision would have increased the price of petrol and even, inflation, which is currently at the highest level in 14 years, will increase even more, where the cost of fuel is cited as the main reason for the price increase. price of goods and services.
The sense of security is one of the main reasons that foreign investors continue to pour funds into Thailand’s equity markets.
Foreign investors have been net buyers of more than 160 billion baht of Thai shares so far this year.
The Thai baht is one of the best performing currencies in the Asian forex market after gaining 1% against the US dollar in the month of August.
This happened after the BoT raised rates in August and while another rate hike is expected this month, according to Enrico Tanuwldjaja, an economist at UOB in Singapore.
“We keep our USD/THB forecast unchanged, and expect the pair to hit 37.30 by the end of 2022,” Enrico said, while UOB’s forecast is that the Thai baht will remain at 37 baht per US dollar in most of 2023 and coming. 37.50 baht per US dollar in the second half of 2023.
The BoT argument
Daranee Saeju, senior director of the financial market department of the Bank of Thailand, revealed that last week the currency was subject to fluctuations due to inflation figures in the United States, which remained high. .
The BoT said that due to this situation, investors expect the Federal Reserve to raise its interest rate when it meets later this month.
Mr. said Daranee that since the beginning of this year, the US dollar has appreciated by 14.6% and that this is one of the main factors that led to the decline of the regional currency and the decline of the Thai baht.
However, he insisted that there were no signs of any unusual movement of funds.
Year-to-date, foreign investors still have a net position in invested Thai assets of more than 160 billion baht.
The continued appreciation of the dollar has led to the reduction of foreign exchange reserves in many countries, Mr. Daranee said.
For Thailand, foreign exchange reserves decreased from $278 billion at the beginning of the year to $240 billion.
This reduction is the result of the evaluation of multi-currency asset reserves in the dollar currency.
Despite the $38 billion loss, Thailand’s foreign exchange reserves remain one of the largest in the world.
The country’s reserves represent 48% of the country’s gross domestic product (GDP) and more than three times the country’s short-term debts.
Source: Thai Enquirer