BAY: Baht could hit 30 to dollar in 2019

The baht’s strength is expected to continue into next year when the local currency could hit 30 against the US dollar on the back of the burgeoning economy, says a Bank of Ayudhya (BAY) senior official.

Offshore funds will flood into Thailand if the US Federal Reserve decides to shift its stance to hold the rate steady after a string of rate hikes as the gap between the US Treasury and the Thai government bond will be narrowed, said Tak Bunnag, head of global markets group at BAY.

BAY forecast the baht will move in a range of 30-32 to the dollar in the first three months of 2019 and 30-31.75 in the second quarter, said Mr Tak.

The baht is expected to be in a band of 31.50-32.50 this quarter.

Thailand experienced massive capital outflows from many asset classes in March as the gap widened between the US treasury (which climbed above 3%) and the Thai government bond yield (which was below 3%).

He said the US Fed Fund rate is expected to be 2.45% in first half of next year, up from 1.50-1.75% at present, while Thailand’s one-day repurchase rate is estimated to be raised to 2% by the first half of next year from 1.50% currently.

The Bank of Thailand would likely signal it is normalising monetary policy before raising the rate this year, said Mr Tak.

“The monetary policy committee is expected to keep the interest rate steady at the upcoming meeting this month [June 20]. However, an interest rate hike could happen around the end of this year,” he said.

Mr Tak said the market is watching the US-North Korea summit scheduled for this month and the European Central Bank’s decision as to whether it will start tapering its quantitative easing package by the third quarter.

The focus will shift to the US midterm elections in the fourth quarter as the market will take its cues from America’s response to President Donald Trump’s “America First” policy, he said.

The market will also keep monitoring Thailand’s general election, scheduled for the first quarter of next year.

Roong Sanguanruang, head of the global market research and analysis section at BAY, said the bank increased its 2018 economic growth forecast to 4.7% from 4%, assuming exports will expand 9%.

The bank earlier predicted export growth at 5%.

BAY raised its domestic consumption growth forecast for this year to 3.8% from 3.3% and private investment growth estimate to 4.1% from 3.5%, but trimmed its state investment growth forecast to 8% from 10% because of the slow budget disbursement following the enforcement of the Government Procurement and Supplies Management Act.

“The economic expansion depends on many sectors, not only exports and tourism,” she said.

The bank is maintaining its forecasts for inflation and core inflation at 1% and 0.7%, respectively, this year.