Strong baht headache for pol­i­cy­mak­ers

New Straits Times - - Business World -

Thai­land’s pop­u­lar­ity among bond in­vestors is cre­at­ing a headache for pol­i­cy­mak­ers count­ing on ex­ports and tourism to drive growth.

Some US$2.2 bil­lion (RM9.79 bil­lion) of for­eign money has flowed into the na­tion’s debt this year, mak­ing it the top des­ti­na­tion among South­east Asia’s emerg­ing mar­kets. That’s buoy­ing the baht, the re­gion’s best de­vel­op­ing-na­tion per­former this year, and spurring spec­u­la­tion the cur­rency will cope with ris­ing United States in­ter­est rates bet­ter than its peers.

It’s also caus­ing prob­lems for pol­i­cy­mak­ers who are try­ing to re­vive an econ­omy whose growth has slowed for the past two quar­ters.

Bank of Thai­land gov­er­nor Veerathai San­tiprab­hob said on Fe­bru­ary 23 for­eign­ers saw the coun­try as a “safe haven” and the baht’s strength wasn’t help­ing the econ­omy.

“It’s an ex­port-ori­ented econ­omy, and if their cur­rency is re­silient while oth­ers are weak­en­ing, it’s neg­a­tive for them,” said Masakatsu Fukaya, a Toky­obased emerg­ing-mar­ket trader at Mizuho Bank Ltd. “The cen­tral bank may hint that it will take some steps to ad­dress the baht’s out­per­for­mance, or ver­bally in­ter­vene in the mar­ket.”

With an econ­omy reg­is­ter­ing a cur­rent-ac­count sur­plus of more than 10 per cent of gross do­mes­tic prod­uct as well as grow­ing for­eign-ex­change re­serves, for­eign funds have been lured to Thai debt, but the coun­try has also ben­e­fited as other South­east Asian mar­kets lost their lus­tre.

In­vestors had turned cau­tious on Malaysia due to changes to rules on for­wards late last year that de­terred cur­rency hedg­ing, while for­eign funds al­ready had big po­si­tions in In­done­sian debt, said Vin­cent Tsui, an econ­o­mist at Al­lianceBern­stein LP in Hong Kong.

For­eign­ers own 8.4 per cent of Thai bonds, ac­cord­ing to a cal­cu­la­tion us­ing cen­tral bank fig­ures, com­pared with 38 per cent in In­done­sia and 31 per cent in Malaysia.

The de­mand for Thai notes has helped drive a 2.2 per cent gain in the baht against the US dol­lar this year. That com­pares with ad­vances of 0.7 per cent in the ru­piah and ring­git, and a 1.3 per cent drop in the Philip­pine peso.

Veerathai San­tiprab­hob

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