As the Thai baht reaches a level not seen since late September 2006, doubts arise over the Bank of Thailand’s (BoT) statement that the 1.35 trillion baht disappearance from international reserves was nothing more than a “revaluation” activities.
Has the central bank actively supported the currency to artificially keep it stronger than it should be?
Earlier this week, the BoT revealed Thailand’s reserves amounted to $ 240 billion, down from $ 278 billion seen earlier this year.
The BoT explained that the reason for the decline was that it was appreciating all assets, as most of the assets it holds in its diversified portfolio had depreciated due to the strengthening of the US dollar against all global currencies.
Rising interest rates in the US have pushed the US dollar to strengthen to levels not seen in more than a decade, causing many countries to struggle to prevent their currencies from depreciating.
The Thai baht has depreciated around 9% against the US dollar since the beginning of the year and is trading at 36.96 against the dollar early this morning.
See: THB Thai Baht rate
This level has not been surpassed since the end of September 2006 and has already surpassed the level of 36.95 seen in mid-July this year.
“The BoT has not said where the decline in reserves is coming from, but in my view it is split equally between interventions and revaluations,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra.
A necessary intervention to support the economy
If the BoT uses even half of the $ 38 billion intervention to support the Thai baht, that would mean that the central bank has used nearly 700 billion baht to help the baht not weaken further.
Many economists claim that the Thai baht has been artificially strong for a long time, given the weak economy which only began to recover after the country’s borders opened in July 2022.
Economists said one reason for the intervention may have been to bolster the economy and calm sentiment.
Thailand, which is heavily dependent on importing many of its products, be it oil or other commodities, must keep the Thai baht at a certain level to avoid throwing money on the flames of inflation.
Thailand, like other countries, is facing a surge in inflation due to rising oil prices, and failure to act would have meant that the Thai baht could have gone well above 37 baht per US dollar.
Such a decision would have pushed up the price of fuel and, in fact, inflation, which is currently at its highest level in 14 years, would have risen even more, with the cost of fuel cited as the main reason for the price increase. , prices of goods and services.
The sense of security was one of the main reasons why foreign investors continued to fund Thai equity markets.
Foreign investors have so far been net buyers of just over 160 billion baht of shares in Thailand this year.
The Thai baht was one of the best performing currencies in the Asian forex market after gaining 1% against the US dollar during the month of August.
This came after the BoT raised rates in August and while another rate hike is expected this month, according to Enrico Tanuwldjaja, an economist at UOB in Singapore.
“We keep our USD / THB forecast unchanged and expect the pair to hit 37.30 by the end of 2022,” said Enrico, while UOB’s forecast is that the Thai baht will remain at 37 baht per US dollar for much of the year. 2023 and will reach 37.50 baht per US dollar in the second half of 2023.
The BoT argument
Daranee Saeju, senior director of the financial markets department of the Bank of Thailand, revealed that the currency has been subject to fluctuations in the past week due to inflation data in the United States, which has remained high.
The BoT said that due to this situation, investors had expected the Federal Reserve to raise the interest rate when it meets later this month.
Mr. Daranee stated that since the beginning of this year the US dollar has appreciated by 14.6% and that this is one of the main factors that have led to the depreciation of the regional currency and the depreciation of the Thai bath.
However, he insists that there are no signs of unusual fund movements.
Since the beginning of the year, foreign investors still have a net position in invested Thai assets of over 160 billion baht.
The continued appreciation of the dollar has led to a decline in many countries’ foreign exchange reserves, Daranee said.
For Thailand, foreign exchange reserves fell from $ 278 billion at the beginning of the year to $ 240 billion.
This decrease is the result of the valuation of the multi-currency capital reserves in dollar currency.
Despite the disappearance of $ 38 billion, Thailand’s foreign exchange reserves remain among the largest in the world.
The country’s reserves account for 48% of the country’s gross domestic product (GDP) and more than three times the country’s short-term debt.
Source: Thai Enquirer