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The THB has appreciated by around 5% against the US dollar since the start of October and is up 10% from the lows it touched in March. It is now not far off the multi-year highs reached in 2013. There is little evidence that the appreciation of the Thai baht is having a negative effect on the economy and economists at Capital Economics don’t think it will be a major drag on the recovery.

Key quotes

“There is little sign that the appreciating baht is holding back the economy. Admittedly, a stronger baht pushes down the local-currency value of Thailand’s exports that are priced in foreign currencies, as most are. This can dent the revenues and profits of Thai companies and drag on growth.”

“Thai goods exports have historically tracked those from other Asian economies. This suggests it will be the strength of global demand, rather than the value of the currency, that determines merchandise export performance. The other sector linked closely to foreign demand is tourism. Its recovery will mainly be determined by how quickly the authorities are prepared to reopen the country’s international borders.”

“In recent months, the authorities have stepped up efforts to stop the currency from appreciating. The main option they are favouring is direct intervention in foreign exchange markets. Thailand could intervene more aggressively, especially now that the risk of it triggering retaliatory action from the US has eased following Donald Trump’s election defeat. Policymakers could also introduce steps to encourage capital outflows. Capital controls and interest rate cuts are other options the authorities may want to consider.”

“Over the next year or so we think Thailand is likely to have to adapt to the reality of continued inflows and further upward pressure on its currency as the global economy recovers, risk appetite increases, and the dollar weakens across the board. Our forecast is that the Thai baht will appreciate by a further 5% over the coming year and the USD/THB will finish 2021 at 29.00.”