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Thai economic growth continues to ease on strong THB, USD/THB to see upside risk in coming months
Thai economy and exports continue to ease because of slower global growth and the strong Thai baht. The Bank of Thailand recently lowered interest rates by 50 basis points in 2019 and the minutes indicate towards a dovish bias and potentially more measures to stem THB’s strength.
The latest trade figures for October indicate towards continued soft exports in the midst of the slowing global backdrop and the strong THB. Exports dropped 3.1 percent on a three-month moving average trend basis which was the tenth straight month of contraction. Imports came in even weaker, contracting more than 9 percent on a three month-on-month basis which is also a reflection of weak domestic demand.
Earlier in the week, the third quarter GDP report indicated that the economy expanded at a modest rate of 2.4 percent year-on-year and at 2.5 percent in the initial three quarters of 2-19 compared to 4.3 percent pace for the same period last year. The Bank of Thailand minutes released this week showed ongoing worries about THB’s appreciation against its major trading partners in 2019, noted Commerzbank in a research report. THB is outperformer among Asian currencies this year, up almost 8 percent against the USD year-to-date as compared with the average for Asian currencies of just 0.4 percent.
“The main reasons are due to healthy capital inflows and Thailand’s persistently large current account surplus which is expected to be above 5.5 percent of GDP for the second consecutive year this year”, said Commerzbank.
Bank of Thailand has already rolled out several measures to stem THB’s strength in 2019. These include greater leeway for exporters to keep proceeds in USD and eased restrictions for residents to invest abroad. It has also cut rates twice by 50 basis points to a record low of 1.25 percent.
The minutes said the Bank of Thailand is data dependent but it effectively left the door open for further cuts. It will review the capital outflow rules every quarter, implying that more might be done if THB stays strong.
“For the EUR-THB cross, it is down 10 percent so far this year to a record low of around 33.40. This is driven by both a softer EUR and a firmer THB. Given slowing growth concerns and the detrimental impact of a strong THB, we see risks of further measures from BoT to stem THB’s strength. As such, we see an upside risk to both USD-THB and EUR-THB in coming months”, added Commerzbank.
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