beyondbrics

While all eyes are on the yen’s current strength, the Thai baht has also been scaling heights not seen for a long time.

It hit a 13-year high of Bt31.05 against the dollar on Wednesday, a day after the central bank said that it wasn’t going to intervene in the market.

Both the Bank of Thailand and Korn Chatikavanij, the finance minister, have been at pains to let everyone know that although they are watching the baht closely, they aren’t going to wade into the market to try and hold down the value.

This is Korn after a cabinet meeting earlier this week (as quoted by the Bangkok Post):

Almost all currencies in Asia are appreciating against the dollar, reflecting the weakness of the US economy.

The baht should reflect economic fundamentals. But we have to accept that fund inflows and the high trade and current account surpluses have put pressure on the baht.

The Bank of Thailand has always said that it only intervenes to dampen volatility, but forex analysts suspect that until recently they were intervening asymmetrically – in other words, only moving against upside volatility. The evidence? Ballooning foreign exchange reserves, which seemed to be growing suspiciously fast.

But in recent weeks the Bank seems to have backed off and allowed the baht to rise.

Although the politicians are watching closely, capital controls seem unlikely in the immediate future. The military government tried them just after the coup in 2006, with disastrous results, and even if the IMF have given their blessing, investors are not persuaded.

Mark Mobius of emerging markets specialists Franklin Templeton, who spoke in Bangkok recently, called them the “death knell” for markets.

A strong baht is a problem for the economy – exports are equivalent to about 65 per cent of GDP – but there are some reasons why the government may be less than frantic about the issue.

The currencies of key competitors have also appreciated. Data from the central bank show that at the end of August the Nominal Effective Exchange Rate was up just 4 per cent up in the year to date, not quite as ugly as the 7.2 per cent appreciation against the dollar.

Thai exports also have a high import content, particularly in the key automotive and electronics sectors, so a stronger currency makes those imports cheaper.

And the tourist sector – 6.5 per cent of GDP – doesn’t seem to be affected, by the baht or the bombs.

The state tourism agency said on Tuesday that it expects Thailand to draw at least 14.5m foreign tourists this year, according to Reuters. That is below the 15.5m it expected before political violence in April and May that killed 91 people, but would be up from 14.15m in 2009.

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