Is the Baht about to Crash?

[Gaybutton]

We've certainly waited long enough for a turn-around to improve the exchange rates. Especially for those of us who are residents in Thailand, we've lived with the exchange rate eating away at our funds for the better part of three years. Now, the political situation, inflation, fuel prices, diminishing tourist numbers, decline of the stock market, etc. are all having their effect on the exchange rates. Right now, the exchange rate is better than it has been in nearly a year (although it still sucks!), and has been slowly moving in a direction favorable to farang.

 

Now the news reports are full of foreboding as to what is going to happen financially in Thailand. Something is in the wind, and if it happens it won't come any too soon for me!

 

The exchange rates closed on Friday, June 20 as follows:

_____

 

US Dollar: 33.23

 

Euro: 51.81

 

British Pound: 65.665

 

Australian Dollar: 31.5575

 

Canadian Dollar: 32.655

____________________

 

The following appears in the BANGKOK POST:

_____

 

Foreigners Cash Out

 

Singapore - A new report by Citigroup blames rising inflation and fears stagnation have triggered a flight of foreign funds out of regional markets - although Thailand is still a net gainer.

 

China has taken the biggest hit, the finance house said on Saturday, with the funds offloading $2.78 billion worth of mainland shares between January and mid-June this year.

 

Foreign fund managers have sold about $4.6 billion in Asian equities, nearly double the $2.48 billion they invested during the corresponding period of 2007, the report said.

 

But the data was not all grim. Taiwan emerged with $2.1 billion from foreign funds this year, Thailand is still $109.1 million in the black, India $34 million and Indonesia $11 million, the report said.

 

"For the first time since the 1997-98 Asian crisis, Asia is in a sell-off mode, inspired by developments taking place in its very neighbourhood, namely energy-driven inflation," the Straits Times quoted Merrill Lynch strategist Mark Matthews as saying.

 

Foreign fund managers sold $254 million in Malaysian equities, compared to $1.1 billion pumped in last year, the report said.

 

The city-state is another underperformer, with $229.8 million worth of equities sold this year compared with the $1.1 billion fund flow into Singapore equities last year.

 

"Whether you are selling coiled steel or cut flowers, the cost of transport is a problem," Matthews told the newspaper. "You have to ask whether it still makes sense to ship stuff from China when the price of a sea voyage from Shanghai represents half of the value of the product."

 

He expressed hopes that high oil prices will encourage Asian manufacturers to embark on more cost-cutting in order to survive and get more market share.

 

(dpa)

____________________

 

And this, from THE NATION:

_____

 

Bank of Thailand Issues Call for Spending Spree

 

By Anoma Srisukkasem

The Nation

Published on June 21, 2008

 

The government should fully disburse its budget this year to boost economic growth to 6 per cent, a deputy governor of the Bank of Thailand (BOT) said yesterday.

 

 

She said this was because the central bank needed to raise its policy interest rate to fight inflation before it is too late.

 

Atchana Waiquamdee said the government could achieve 6-per-cent growth if its budget disbursement reached 94 per cent and state enterprises actually used at least 80 per cent of their investment budget.

 

Skyrocketing oil prices could affect economic growth, as the current price is already beyond the central bank's worst-case scenario of US$113 (Bt3,800) per barrel. But the better-than-expected US economy was a positive factor for the Kingdom's economy, she said.

 

The deputy governor said the central bank needed to control "inflation expectation" amid a negative real policy interest rate or else consumer spending would accelerate, which would fuel inflation incessantly.

 

Moreover, the country's capacity use is nearly full, because the labour market is tight with a low unemployment rate. Rising prices of goods and services will put additional pressure on wage adjustment, Atchana said.

 

"We must consider whether the real policy interest rate is proper for the economy. If we do not slow down inflation, it may not stay under control. This will force us to use a strong dose of medicine, which would eventually drag down the economy," she said.

 

"Giving gradual doses and keeping a close eye on whether the economy can bear them or not is better than letting inflation overshoot and eventually get out of control," the deputy governor said.

 

Nimit Nontapunthawat of Bangkok Bank said if inflation expectation was allowed to occur, inflation would be high and prolonged. This would dampen the country's savings, including deposits of Bt6 trillion, resulting in a slump in purchasing power and economic growth.

 

He predicts the baht will move between 32 and 34 to the US dollar this year.

[fedssocr]

I guess 34 is better than 32 or 33 for Americans. Unfortunately though our economy over here is in terrible shape as well and it's only likely to keep getting worse. So that will prevent the dollar from gaining much on the TBt.

[mahjongguy]

Only a severe liquidity crisis can knock the stuffing out of a currency, as happened in Asia a decade ago. This time around, the specter of that catastrophe has been in the US and Europe, on the wrong side of the equation for us ex-pats.

 

Exchange rates are complex and notoriously difficult to get on the right side of, but generally, higher interest rates contribute to a stronger currency, and the 2nd article indicates that interest rates in Thailand may need to rise in order to help counter oil-induced inflation. So, there will be both upward and downward pressures on the baht vs. the Dollar, Pound, etc. Thus the reasonable prediction that the USD/THB will float around between 32 and 34.

 

Still, anything can happen, and I'm sweatin' bullets 'cause I'm about to bring over a big fistful of bucks to buy a house. If the baht goes off the deep end a week later I'll be slashing my wrists.