The baht has slightly depreciated against the US dollar after the US Federal Reserve decided to raise its benchmark rate by 25 basis points amid expectation of two more increases this year. Foreign capital has been fleeing Thailand with foreign sales of Thai stocks worth about Bt146 billion so far this year.
According to the Bank of Ayudhya’s Global Markets Group, the Thai currency has been moving in the same direction of its regional peers.
From the end of May, the Thai baht has depreciated by 0.5 per cent, the Philippines’ peso by 1.5 per cent, Japanese yen 1.25 per cent, Korean won 0.45 per cent, India rupee 0.28 per cent and Indonesian rupiah by 0.26 per cent.
The Fed’s rate hike is expected to further encourage the outflow of foreign capital to high-yield markets, the bank said, adding that the baht would likely return to an uptrend towards the end of the year if the Bank of Thailand gives clearer signs for a rise in its policy rate late this year.
Currently, markets continue to follow the signals of major central banks, including the European Central Bank and Bank of Japan.
From the start of this year, foreign investors have been net sellers of Thai stocks worth about Bt146 billion. They have also purchased Thai bonds worth about Bt146 billion.
Yesterday, the SET closed at 1,709.86, dropping 8.48 points from Wednesday, with a total trade value of Bt59.74 billion. Foreign net sales amounted to Bt9.64 billion.
However, there were signs of fewer purchases of Thai bonds in May and foreign capital were expected to move out of Thailand to the United States.
The Federal Open Market Committee (FOMC) unanimously agreed to increase its benchmark rate by 25 basis points to 1.75-2.00 per cent on Wednesday (June 13), as expected by the money markets. It was the second time after March’s increase and the seventh since December 2015.
The Fed has also signalled two more increases this year, expected to be in September and October.
Siam Commercial Bank’s Economic Intelligence Centre (EIC) said that the two expected round of increases could lead to gradual rises in long-term US bond yields, given no significant change in long-term US inflation forecast.
Based on past developments, Thailand’s bond yield was less sensitive to the US yields than those of its regional peers, the research house (IEC) said.
Some countries with fragile economy may see risks in the gradual crunch of the global financial situations, the IEC said. But investors will select to make investment according economic strength of the emerging-market countries, it added.
The research house (IEC) said that Thailand has low risks due to its strong economic stability compared to other nations in the region.
The Fed has also revised up its forecast for this year’s US economic growth from 2.7 per cent to 2.8 per cent and maintained its estimate for next year’s at 2.4 per cent. This year’s estimated US inflation is also raised from 1.9 per cent to 2.10 per cent.
The US central bank projects the short-term interest rates at 2.38 per cent by the end of this year, up 25 basis points from March’s estimate.
Bank of Thailand is expected to maintain its policy rate at 1.50 per cent this year although the US rates are now higher with wider differential, the EIC said.
Based on Thailand’s managed float regime, Thai inflation remains low and its foreign reserve is large enough to cope with the expected volatility from capital movements, while the country’s current account has been in surplus, the research house (IEC) said.
Thailand’s Monetary Policy Committee is expected to weigh less on the US rate policy, but more on Thailand’s headline inflation and output gap for its decision to leave the policy rate unchanged, the IEC said.