Thai companies are expected to experience a limited impact from yesterday's further devaluation of the dong, which is aimed at easing Vietnam's current-account deficit rather than boosting the country's export competitiveness.
Bank of Thailand Deputy Governor Bandid Nijathaworn said any increase in Vietnamese manufacturers' export competitiveness from the devaluation would be offset by higher inflation.
Vietnamese production costs are higher than those in Thailand, given January's inflation rate of 7.62 per cent against 4.1 per cent in the Kingdom.
"The January inflation figure indicates that their production costs are higher than Thailand's," he said.
Responding to exporters' requests for the Bank of Thailand to intervene to weaken the baht against the US dollar, he said that before making any move, the bank had to take many issues into consideration, particularly economic stability and inflation.
"In any action we take, we need to balance inflation and economic recovery. The economy is picking up and we need to see if the recovery is sustainable," Bandid said.
Vietnam yesterday surprised the market with its second devaluation in three months amid widespread concerns over a high trade deficit and inflation.
The average interbank rate yesterday was 18,544 dong per US dollar, against 17,941 the previous day, a fall of 3.4 per cent, the State Bank of Vietnam said.
The country's central bank said the decision had been taken to balance supply and demand, as well as to increase flows in the foreign-exchange market "while contributing to controlling the trade deficit and stabilising the macroeconomy".
In November, Vietnam effectively devalued the dong by 5.4 per cent and reduced the trading band from 5 per cent.
Sethaput Suthiwart-Narueput, executive vice president and chief economist of Siam Commercial Bank, foresees a limited impact from the latest move due to the small overlapping export interests of Vietnam and Thailand.
For example, although both countries are key players in the textile industry, Thailand operates at the upper end and the weaker dong will not damage the Kingdom's exports, he said.
"Foreign-exchange rates alone cannot determine competitiveness. We need to take into account Thai inflation, as well as the inflation rates in other countries. A currency can be weakened, but the benefit could then be offset by high inflation," he added.
In the year to date, the dong has not appreciated against the US dollar, while the baht has gained 0.5 per cent. This week alone, the dong has depreciated 0.8 per cent against the greenback.
Bangkok Bank managing director Singh Tangtatsawad expects only a minor impact from the dong's devaluation on the bank's export clients, who are all fundamentally strong.
However, he said exporters as a whole needed to improve their production and service efficiency, particularly product quality, as they could no longer focus on price competitiveness alone.
Against the background of yesterday's black-market rate of 19,500 dong per US dollar in Vietnam and the country's trade deficit of US$12 billion (Bt398 billion) last year, Singapore-based DBS Group Research said further weakening towards 19,640 per greenback could be expected during the rest of the year.
