Strong baht headache for policymakers
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.