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Published on September 8, 2007

The unit is already up 4.8 per cent since early this year, closing yesterday at 34.26-34.28 to the US dollar.

Supavud Saicheua, managing director of Phatra Securities, yesterday said the baht could be pressured higher by 5-7 per cent toward the end of the year due to the expected appreciation of the yen and the yuan.

The yen is estimated to be stronger by 5-6 per cent on the unwinding of carry trades. Investors who borrowed at low interest rates in Japan and took the money out of the country to seek higher returns would bring the money back.

The yuan is also expected to advance by 5-7 per cent in response to US insistence that China correct its massive trade surplus with the world's biggest economy, said Supavud.

"The central bank will try to manage the baht by preventing it from getting stronger too rapidly, although it can't go against the market. That would create a burden," he said during a seminar entitled "The baht … where are you?"

The rosy forecast for the baht assumes that the domestic political situation is stable and the new government's policies are clear, otherwise the currency could go into reverse, he said.

Songpol Chevapanyaroj, head of Kasikornbank's capital markets business, believes the currency could gain Bt2, reaching 32.90-33.00 against the greenback, at the end of the year when exports of goods and services usually pick up.

Aside from the intervention of the Bank of Thailand, the state enterprises that bought dollars to pay foreign debts worth US$2 billion (Bt68.6 billion) would help slow down the baht's uphill trek, he said.

He warned that the unit would be volatile for the rest of the year due to the imbalance of supply and demand and a fragile currency market with low liquidity.

Songpol blamed the central bank's unremunerated reserve requirement for causing the dollar/baht market to be as thin as $500 million a day, compared with $1.5 billion early last year. The thin market has resulted in the strength of the currency, he said.

"The procedure and policies lead to the strong baht. The appreciation or depreciation of the currency arises without any plan. We always have wrong plans," he said.

The government should issue baht bonds and buy dollars from the central bank or exporters for its investment projects instead of borrowing from foreign creditors, he said, adding that this would also calm down the currency.

Bansoon Liangthanom, a senior executive of CP Intertrade, recommended exporters and importers to hedge their dollar incomes and expenses quickly and daily in order to prevent any currency loss.

Supavud believes that the US sub-prime mortgage crisis will not fade away within a few months as projected by the World Bank. He said the turbulence was complicated and difficult to project.

He expressed concern over the crisis, particularly when Asian countries would no longer finance the US current-account deficit of 4-5 per cent of gross domestic product.

Supavud said that although the Kingdom's current account showed a surplus, there was a risk that the country would receive less foreign money inflows due to capital controls.

In the first half of the year, net inflows reached $2 billion as the current-account surplus grew to $6 billion.

He urged the government to speed up its imports and infrastructure investment in order to maintain the country's competitiveness.

Anoma Srisukkasem

 The Nation