THAILAND - Yesterday the baht weakened to 32 per US dollar for the first time since August 2010 as official data showed global funds sold US$582 million (S$739 million) more Thai bonds than they bought this month through yesterday and pulled out a net Bt30.6 billion (S$1.2 billion) from equities. A government report this week showed that Southeast Asia's second-largest economy entered a recession for the first time since 2009.
Tak Bunnag, executive vice president of Bank of Ayudhya's treasury group, said the weakening of the baht was partly due to fundamentals of the Thai economy, to which investors gave 30-per-cent weight when deciding where to put their money.
Estimates of growth in Thailand's gross domestic product were lowered on Monday to 3.8-4.2 per cent after growth in the second quarter was slower than in the first.
He said the economies of most Asian countries were slowing along with China's, with a consequent depreciation of their currencies.
Year to date, the baht has depreciated by 4.8 per cent against the dollar. Indonesia's rupiah has weakened by 12.6 per cent and India's rupee has seen the largest decline at 19.6 per cent.
Tak said investors had reallocated their funds ahead of the tapering of the United States' quantitative-easing programme. If the US Federal Reserve ends QE, the baht might not drop much, and might even begin strengthening again.
Markets expect the Fed to reduce its bond purchases next month.
Kampol Adireksombat, senior economist at Tisco Securities, said the baht was depreciating too much as foreign investors were worried about emerging-market economies. Some current accounts are in deficits.
The baht weakened 0.75 per cent to 32.07 per dollar yesterday morning.
"The baht is overshooting because of foreigners' concern over emerging countries' current-account deficits. Indonesia's is in a deficit of 3-4 per cent of its GDP. Thailand's current account was in a slight deficit in the first half of this year," Kampol said.
According to the National Economic and Social Development Board, Thailand had a current-account deficit of 5.1 per cent of GDP in the second quarter. In the first half, the current account was in a deficit of 1.9 per cent of GDP.
Kampol expects the Thai economy, particularly exports, to recover in the latter half of this year, and that could reduce the current-account deficit to no more than 1 per cent of GDP, or even put it into a slight surplus.
He also expects the baht to appreciate to about 31.5 per dollar late in the year.
Meanwhile, Deputy Commerce Minister Niwatthumrong Boonsongpaisan said the government will not seek Bank of Thailand's in the exchange rate, although the baht's rapid depreciation has affected some traders.
He said the ministry and involved agencies will revise the export target for this year next month.
Drive export growth
Pornsilp Patcharintanakul, vice chairman of the Thai Chamber of Commerce, said the weaker baht should have a positive impact on the trading sector overall. However, it would affect some sectors that rely on imports, particularly fuel, chemical fertiliser, wheat flour and machinery.
"The concern is about a rapid depreciation or appreciation in a short period that could affect traders' confidence about the baht's fluctuation," he said.
Pornsilp said the baht's movement should also change in accordance with those of trading competitors in the region. So far, the baht, the Malaysian ringgit and the Philippine peso are weakening, while other currencies such as the Chinese yuan and Vietnamese dong have not depreciated. This could reduce traders' and investors' confidence in the Thai economy.
Despite the baht's depreciation, he said exports would still face difficulty achieving this year's growth target of 5-7 per cent. The sluggish global economy will likely keep export growth down to only 3 per cent.
In addition, because of the sudden weakening of the baht, some importers who have not fixed exchange rates in advance could be seriously hurt.
For instance, some machinery importers will need to pay more if they ordered goods while the baht was around 30 against the greenback.
Veerachai Chaochankit, chairman of the Agricultural Machinery Club under the Federation of Thai Industries, said about 10 per cent of agricultural machinery was imported from overseas and would be affected by the baht's depreciation. However, this impact should be minimal as most traders had advance contracts that were normally flexible.
Veerachai said traders favoured stable currencies rather than those that fluctuated rapidly in a short time.
Pornthip Hirunkate, vice president of the Tourism Council of Thailand, said the tourism industry still looked optimistic. The weaker baht would give foreign tourists more spending power and back the Kingdom's reputation as a value-for-money destination. This would help spur the sector's performance in the approaching high season.
However, outbound tour agencies will feel somewhat of a pinch because Thai tourists will have to pay more, she said.
Overall, she remains confident that the industry can adjust to the situation. The bitter experience from the 1997 financial crisis and other, more recent serious troubles have made operators even stronger and more flexible.
She said financial experts should be allowed to handle the exchange-rate issue. The baht is weakening on the same trend as elsewhere in Asia. The government should not interfere with its value because that would distort the market landscape and create problems in the future.