Cheaper hedging for small exporters urged

Economy July 11, 2017 01:00

By WICHIT CHAITRONG
THE NATION

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THE BANK of Thailand (BOT) has asked commercial banks to help small exporters hedge against the volatility of the baht by cutting the cost of hedging, while the Export Import Bank of Thailand (Exim Bank) is expected to find solutions for exporters.



BOT Governor Veerathai Santiprabhob said the baht had strengthened as a result of the weakening of the US dollar with further prospects of volatility.

“Thai exporters should learn how to cope with the exchange rate volatility, just as exporters in Malaysia, South Korea and Taiwan have done; their currencies have been far more volatile than the baht,” he said in an interview to Nation Group newspapers Krungthep Turakij and The Nation.

He said large exporters and importers regularly hedge against exchange rate risk. Some medium-sized firms have hedged occasionally and the central bank has been trying to persuade them to do so regularly.

“Many exporters tend to hedge against currency risk when the market move abruptly, but this aggravates the situation because their moves reinforce the market swing,” he explained.

He acknowledged that small exporters might have trouble due to limited resources to deal with exchange rate risks.

“We, the central bank, have sought cooperation from the Thai Bankers’ Association to standardise the fee for currency hedging,” said Veerathai. 

He said he had also learned about efforts being made by Exim Bank to find solutions for small exporters. 

Asked if the central bank should sell its ample foreign reserves to Exim Bank in order to support currency hedging, Veerathai said Exim Bank could buy US dollars from commercial banks. 

His comment contradicted an earlier remark by Finance Minister Apisak Tantivorawong that Exim Bank wanted to buy dollars from the central bank, which could lower the cost for Exim Bank in its efforts to help small exporters.

Amornthep Chawla, head of research at CIMB Thai Bank, agreed with the central bank governor’s advice to exporters. He said exporters should not think that the central bank would rescue them and instead learn how to cope with exchange rate volatility.

The baht has risen by about 5 per cent against the US dollar since early this year, making it one of the most biggest gainers in the region. The baht had appreciated to Bt 33 per dollar but of late it had fallen back to the Bt34 level after the US reported better jobs data on Friday.

Exim Bank will hold a seminar on the strengthening of the baht on Tuesday and it might announce additional measures to support small exporters. 

One factor causing the appreciation of the baht is the high current account surplus, caused by falling imports and the recovery of exports as well as the increasing number of tourist arrivals. The current account surplus last year was $48 billion and the central bank has forecast a $40-billion surplus this year.

Foreign investors predict that the baht – among emerging-market currencies – will remain relatively strong hence it is attractive to hold.

A high current account surplus is not always a good thing, Supavud Saicheua, managing director and head of research group at Phatra Securities, said. Decline in imports demonstrates a decline in the purchasing power of Thai consumers, he said, adding, recovery of exports has benefited only exporters while a large part of the population is still struggling to survive. 

Meanwhile, Kobsithi Silapachai , head of capital markets research at Kasikornbank, said that while the central bank may explain the strong baht as caused by a weakening of the dollar, the central bank cannot ignore the impact of disinflation on Thailand’s economy. The inflation rate in June was minus 0.05 per cent, negative for the second month in a row. Kobsithi feared that consumers might postpone spending due to expectations of a further fall in price. If they do so, it would hurt economic recovery. However, the central bank said the falling prices were mainly due to decline in the prices of fresh foods and crude oil.