The Thai baht has been the best performing currency in emerging Asia since 2018. On a year-on-year basis, it has roared more than 8 per cent against the US dollar and this year reached a six-year high.
But according to news headlines and commentary, the strong currency has lowered the country’s competitiveness and worsened both goods exports and tourism, two major drivers of Thailand’s economy.
Currency appreciation is not unique to Thailand
Bank of Thailand (BOT) officials and currency analysts explain the strength of the baht by domestic factors. Thailand’s solid economic fundamentals — a current account surplus and substantial foreign reserves together with a hawkish central bank — lure capital inflows.
Many consider the baht a safe haven currency among other emerging market currencies due to its stability.
As a result, the baht is likely to retain or increase in value, attracting speculative capital inflows and placing upward pressure on the currency.
In early 2019, the BOT did not seem concerned about the Thai baht’s appreciation, as a strong currency can actually benefit Thai importers and those who have foreign currency debts. It can also help improve the country’s terms of trade.
But the baht’s persistent strength and its potential negative impacts on the export-driven Thai economy have since prompted concern.
Exports contracted for a fourth straight month in June and the BOT revised its GDP growth forecast for 2019 downward, from 3.8 per cent to 3.3 per cent.
Measures have been taken to reduce baht appreciation
In July 2019, the BOT lowered the cap on the outstanding balance of non-resident accounts by a third and cut…