"There is a chance that the baht will reach Bt33 per dollar. But if the central bank leaves its policy of foreign-exchange management largely unchanged, the baht is likely to be Bt34," said Pakorn Peetathawatchai, executive vice president of SCB's treasury division.

The central bank has insisted that it will not scrap the drastic capital measure while investors do not thoroughly understand the efficiency of its hedging requirement in preventing currency fluctuation.

SCB forecasts the baht will keep strengthening due to the current account surplus reaching an estimated US$8 billion (Bt277 billion) and the service and transfer account surplus hitting $9 billion this year. These predicted surpluses do not include inflows into the capital market.

Pakorn sees the baht trading at Bt34 to Bt34.25 at year-end, but it could retreat next quarter when goods are brought in to build up inventories for exports in the fourth quarter and the first quarter of next year.

The volume of capital pouring into the stock, bond and property markets would also cause the baht to gyrate, he said.

"The baht will remain strong over the long term but it could swing and slightly weaken before turning back," he said.

The $10-billion balance of payments surplus expected this year could result in the baht gaining Bt2.10 from the beginning of this year. The baht was up by Bt6 last year, Bt4 in 2005 and Bt3 in 2004.

Many risk factors still need to be taken into account, including crude oil prices, slowdowns in global and US economies, appreciation of the Chinese yuan and domestic political uncertainty, he said.

SCB forecasts the policy interest rate being slashed by 25 basis points over the next two policy-making meetings to 3.25 per cent by year-end, which would push the three-month deposit rate down to 1.75 to 2 per cent.

"We do not see core inflation reaching the ceiling of 3.5 per cent this year, so monetary policy is likely to be neutral and the rate won't be raised in the near future," he said.

Due to the baht's upwards trend, importers should reduce exposure by hedging and shorten the period of foreign-exchange hedging, while exporters should do the opposite, SCB said. They are also recommended to lock their lending costs at the lowest rate and in long-term maturities.

Veerathai Santiprabhob, another executive vice president, believes exports will continue to grow for the rest of the year and play the role of a key economic engine along with government spending. The surge in exports could be anticipated by sound imports of raw materials, except in some sluggish businesses, such as computers, jewellery, glass and mirrors.

The government is likely to speed up its spending of Bt504.82 billion for the remaining six months of the budget, which would help boost the economy by 3.8 to 4.5 per cent this year, he said.

Domestic demand will remain in the doldrums until political uncertainty dissipates and the government's policies become clearer. If the general election is held as planned, confidence would be restored and that would help drive the economy, he said.

Anoma Srisukkasem

 The Nation