THE baht has been weakening in line with its regional peers, driven lower by the moves among major economies to raise interest rates and the concerns over a trade war, Bank of Thailand (BOT) governor Veerathai Santiprabhob said.
Veerathai said: “These issues have raised concerns in the capital and money markets and market volatility will likely remain high for some time. It may not end soon. Although Thailand has good immunity to external factors, we should not show complacency. We must be cautious and manage foreign exchange well.”
The BOT chief said the Thai currency typically moves in line with other currencies in the region, and that was the case in periods of volatility, adding that such movements should not cause undue concern.
He noted the currencies of some countries had experienced more volatile trading than the baht. He cited Thailand’s relatively strong external position and that it relies on foreign currencies than some other emerging-market countries.
Veerathai said Thailand has relatively low external debt with its foreign reserves at levels 3.5 times higher than external debts. This makes the country relatively less sensitive to capital outflow in some periods, while having consistent current-account surpluses, he said.
“Despite Thailand’s buffer against external factors, we should not be complacent as far as capital-and money-market situations are connected. Measures to prevent currency speculation are the tools central banks must have and which must be applied according to the situations that present,” he said.
Veerathai said that the currency situation would likely remain highly volatile and this period would continue for some time due the rate rises by some of the major central banks, including the European Central Bank. He also cautioned that trade tensions may not be resolved for some time.
In regard to non-performing loans (NPLs) at the Bank for Agriculture and Agricultural Cooperatives (BAAC), Veerathai said that this issue must be monitored as the agricultural sector has been severely affected in a range of areas, extending from an end to price-support policies for some products to droughts and low agricultural product prices.
He said the NPL situation of BAAC, which has more proactive debt restructuring, may not affect the overall Thai economy. He noted that the bad debts of small and medium-sized enterprises (SME) have improved markedly with steady NPL levels.
Ariya Tiranaprakij, executive vice president of the Thai Bond Market Association (ThaiBMA), said that more issuance of corporate debentures are expected in the latter half of this year if companies with merger and acquisition deals, including Minor International and Global Power Synergy, mobilise funds this year. In the first half of 2018, about Bt430-billion worth of corporate debentures had been issued.
Ariya said that interest rates were likely to rise and there were signals from companies for them to pursue gradual fund mobilisation through debentures to lock in low financing costs. “We have seen signs that more companies are looking to issue debentures as seen from requests at shareholder meetings,” she said.
This year’s corporate debenture issuance is expected to exceed ThaiBMA’s target of Bt700 billion, as about half of the Bt400-billion debentures due to expire this year are expected to be refinanced through new debenture issues and expected debenture issues from those with M&A deals, she said.
Tada Phutthitada, president of ThaiBMA, said that although global interest rates remain in an upward trend, the Thai interest rate may be slower to rise.