Chulalongkorn University economist Somphob Manarangsan said the business sector should be more flexible on currency movements and should learn to run its businesses no matter whether the baht is strengthening or weakening.

He suggested that the Finance Ministry and the Bank of Thailand should find benefits from the present strength of the baht, and said the economy needed a mechanism to allow benefits to be gained from both appreciation and depreciation of the currency.

"The private sector should change its views by not relying on the baht being weak. It should also see benefits in a strong currency," said the lecturer.

Despite exporters' complaints, he said most of them were also importers, whose cost of production has fallen because of the relative decline in the value of items such as imported machines and tools. The country's export value, he added, had also been lower than the import value.

According to the central bank's inflation reports, one per cent of baht appreciation causes a contraction of 0.26 per cent in gross domestic product. The same measure of appreciation also slashes 0.09 per cent off both core and headline inflation.

The central bank has already shrugged off the baht appreciation, saying that a strong unit is in line with other currencies.

Somphob said the baht was likely to remain around its current level because there is plenty of demand for baht from tightening liquidity in the country's banking system and the inflow of capital.

Standard Chartered Bank (Thai) senior economist Usara Wilaipich said the unit was likely to climb to Bt37 to the US dollar this quarter, before moving back to about Bt38. This compares with an average of Bt41 last year.

She said external, rather than internal, factors currently had an immense influence on the baht's value. These include US interest rates, market expectation of a stronger Chinese yuan and capital inflows into Thailand.

"It is normal for the foreign exchange market to move up and down and for profit to be taken from the impact of news stories - similar to the stock market," she said. "It is possible that the baht will rebound to Bt39 to the dollar, but it will be difficult for it to reach Bt40 again."

Usara said appreciation of the US dollar, which is supported by rising interest rates, had already reversed to become a weakening trend in the market's expectation of a 5-per-cent peak in the US Federal Funds Rate next month.

Somphob said the baht would possibly be stronger in the second half of the year, when the US Federal Reserve is expected to stop tightening its monetary policy.

Usara said many central banks had tended to diversify their portfolio of international reserves by reducing their holdings of US dollars because it is regarded as a less valuable currency in the light of faltering US economic fundamentals. This has resulted in the appreciation of all regional currencies.

In addition, expectation of a revaluation of the yuan is another key factor putting further strengthening pressure on the baht, particularly when G-7 countries have called for a rapid rise in the yuan, she said.

"We forecast the [Chinese government] will widen its band [of reference currencies for yuan valuation], causing the yuan to strengthen up to 7.85 to the dollar, compared with 8.01 to the dollar at the end of last year," she said.

Usara is optimistic that the baht's strength will grow more slowly than that of other regional currencies as the Bank of Thailand is likely to actively "oversee" its value in a bid to maintain the country's competitiveness.

She said the country's current-account deficit had improved more than expected, especially due to the government's decision to delay its mega-projects. This is expected to have a negative influence on any weakening in the baht's value.

"There is momentum for the baht's appreciation right now," she said. 

Anoma Srisukkasem

The Nation