Unyielding Strength of Thai Baht... Export and Tourism Industries Losing Momentum

Baht Hits Highest Value Against Dollar in 6 Years

Current Account Surplus and Foreign Exchange Reserves Build Trust... Investors Classify It as a Safe Asset

Tourism, Accounting for 20% of GDP, Takes a Direct Hit

Export Slump Leads to Job Losses

Baht Strength Continues Despite Direct Intervention Including Thai Interest Rate Cuts

[Asia Economy Reporter Kwon Jaehee] The value of the Thai Baht has soared to its highest level against the US dollar in six years, delivering a direct blow to exports and the tourism industry. Although the Bank of Thailand has intervened directly to curb the Baht's strength, the upward trend shows no signs of easing.

◆Why the Strength Despite Increasing Uncertainty? = According to Bloomberg on the 6th, the Thai Baht exchange rate closed at 30.174 Baht per US dollar (approximately 1,170.45 KRW). The Baht appreciated by 9% against the dollar just last year.

Considering that global economic uncertainty usually increases preference for safe-haven assets, it is unusual for an emerging market currency like the Thai Baht to show such strong appreciation. This contrasts with neighboring Indonesia, which depreciated by 0.20% to 13,958 Rupiah per dollar, and Malaysia, which also depreciated by 0.15% to 4.1083 Ringgit.

Experts emphasize that the Baht is classified as a 'safe asset' among investors. Thailand's high current account surplus and foreign exchange reserves underpin confidence in the Baht.

According to the Economic Intelligence Center (EIC) of Siam Commercial Bank, Thailand's current account surplus last year was 6.4% of its Gross Domestic Product (GDP). This exceeds the IMF's forecast of 6% and is double that of Japan.

Additionally, the Bank of Thailand's foreign exchange reserves stand at approximately $220 billion, twice that of neighboring countries Indonesia and the Philippines. The Thai government has steadily increased its reserves, learning from the Baht's sharp depreciation during the 1997 Asian financial crisis.

◆Baht Strength Deals Direct Blow to Tourism and Exports = Although the Baht is strong, it negatively impacts the tourism industry, which accounts for 20% of Thailand's GDP.

The Ministry of Tourism and Sports reported that from January to November last year, the number of foreign tourists visiting Thailand increased by 4.44% year-on-year to 35.87 million. The revenue reached 1.74 trillion Baht, up 3.67% over the same period, but this fell significantly short of the government's initial target of 40 million tourists. The Ministry has twice lowered its international visitor targets due to the global economic slowdown and Baht strength?from 42.3 million in July last year to 40.2 million, and then to 39.8 million. The Ministry forecasts 40.08 million foreign tourists this year.

The Baht's appreciation against the Chinese Yuan is a decisive factor in the tourism downturn. Chinese tourists account for 30% of visitors, and their numbers have sharply declined.

The Thai Travel Agents Association has expressed concerns over declining tourism revenue and has requested active government intervention. The Ministry of Tourism and Sports has also advocated measures such as issuing multiple-entry visas to attract tourists.

Moreover, the Baht's strength has led to export sluggishness, resulting in the loss of 100,000 jobs last year alone, with an additional 30,000 jobs expected to disappear this year.

◆Thai Government Intervenes with Two Interest Rate Cuts and More = On December 26, the Baht plunged to 30.226 per dollar, marking the largest drop since 2007. This was due to direct intervention by the central bank to curb Baht strength.

The Thai government is deploying all available policy tools to weaken the Baht. In August last year, the Bank of Thailand lowered the benchmark interest rate to 1.5% for the first time in 4 years and 4 months since 2015, amid growing concerns that Baht strength could shrink exports and tourism.

According to the Bangkok Post, Santiprapop Thongchai, Governor of the Bank of Thailand, stated, "We will not adopt negative interest rates, but if the economic growth target is not met, we may decide to cut the benchmark rate further in 2020."

The Bank of Thailand has also eased capital controls. In October last year, it made it easier to remit money overseas. Additionally, financial authorities reduced promissory note sales to curb short-term capital inflows.

Prime Minister Prayut Chan-o-cha has asserted, "We must actively use dollars to reduce Baht strength, supported by the current account surplus, capital inflows, and high foreign exchange reserves."

Bloomberg forecasts the Baht will fluctuate between 30 and 30.2 Baht per dollar in 2020.

Reporter Kwon Jaehee jayful@asiae.co.kr

This content was produced with the assistance of AI translation services.