Thai central bank chief says 'very worried' about strength of baht

[Sticky Wicket]

3 hours ago, soalbundy said:

Yes that would work, depreciate the currency and get smacked on the head as a currency manipulator by the US.

Not every depreciation is treated as manipulation

 

[Time Traveller]

45 minutes ago, samran said:

Anyone's business who closes down will likely blame all and sundry, except for themselves. Granted, there is stuff the government can do, but it is the fundamental long term stuff. Education, training, infrastructure. Other than that I wouldn't let the Thai government get near my business with a ten foot barge poll - businesses need to fend for themselves. And you are right, this transition probably won't be pretty. 

 

The fact is that Thailand grew strongly through the 80's and early 90's - with a strong baht policy. Back then the AUD/THB was 17-18 baht to the dollar, the USD/THB was around 20-22.

 

Not that they need to replicate the conditions that created that (they were artificial and led to the AFC eventually), but nevertheless, Thai business can thrive and survive in these conditions, and to be honest, the probably need a strong baht to give them the kick up the @rse that they need.

 

 

Not true. Thai economy success in the 1980s was mostly attributed to massive foreign capital inflows by foreign investors such as japanese auto companies. 

Those thai businesses may have had boom times initially, but did not "thrive and survive in these conditions" as you say. They went heavily into debt when the 1990s started. That was the foundation of the economic crisis in 1996.

[phkauf]

56 minutes ago, samran said:

The fact is that Thailand grew strongly through the 80's and early 90's - with a strong baht policy. Back then the AUD/THB was 17-18 baht to the dollar, the USD/THB was around 20-22.

The 80's and early 90's was a VERY different world than what now exists. Thailand was one of the few countries in Asia where one could locate low cost manufacturing at that time. China was just coming out of the dark ages, Vietnam same. Cambodia, Laos, Burma were closed and all basket cases. Malaysia and Indonesia a mess. South Korea and Taiwan were starting to get their acts together and Japan was about to begin their economic malaise.

Your points are well taken, but Thailand has fallen into the classic middle income trap - where they cannot move up the value chain unless major systemic changes are made. I think we all know how likely that will be.

 

[ExpatOilWorker]

The damage might already have been done to the industrial (export) sector.

 

Industry electricity consumption change Y-O-Y:

2019

June: -1.9%

July: -1.7%

August: -3.1%

September: -4.5% (-6.8% 2017) (-3.5% 2016)

 

September 2019 is in fact so bad that is down 6.8% compared to September 2017 and down 3.5% to September 2016.

 

We will have to wait another month to get October's numbers.

[hobz]

17 hours ago, racket said:

They are out of ammo to do anything about it, and they don't want to repeat the mistakes of 1997. 

Can't they just print a bunch of money and and massively lower interest rates? Wouldn't that weaken the baht while at the same time stimulating the economy?

 

Ps. I'm obviously not an economic major ????

[Nanaplaza666]

17 hours ago, CharlieH said:

Took you long enough to realize what we have all been feeling for months !

Years even 

[samran]

22 minutes ago, Time Traveller said:

Not true. Thai economy success in the 1980s was mostly attributed to massive foreign capital inflows by foreign investors such as japanese auto companies. 

Those thai businesses may have had boom times initially, but did not "thrive and survive in these conditions" as you say. They went heavily into debt when the 1990s started. That was the foundation of the economic crisis in 1996.

Agree that there was significant inward investment then, but they still had to export those goods with the baht relatively high, and managed to do so. 

 

Also, it’s not as if that tap has been turned off. The value of BOI applications is up 70% yoy. 
 

The conditions which created the AFC were high domestic interest rates to defend the strong baht. All the while local companies borrowing offshore at relatively lower interest rates instead all assuming that there was minimal forex risk to pay back these loans. 
 

Today we haven’t got the high interest/inflation environment that went in tandem with a higher baht back then. 
 

 

[samran]

22 minutes ago, phkauf said:

The 80's and early 90's was a VERY different world than what now exists. Thailand was one of the few countries in Asia where one could locate low cost manufacturing at that time. China was just coming out of the dark ages, Vietnam same. Cambodia, Laos, Burma were closed and all basket cases. Malaysia and Indonesia a mess. South Korea and Taiwan were starting to get their acts together and Japan was about to begin their economic malaise.

Your points are well taken, but Thailand has fallen into the classic middle income trap - where they cannot move up the value chain unless major systemic changes are made. I think we all know how likely that will be.

 

I agree that’s where Thailand is. In an earlier post I argued that a higher baht may be the thing that will force exporters off the methadone of a weak currency and actually make the productivity gains needed to help break Thailand out of that trap. 

[Nong Khai Man]

18 hours ago, CharlieH said:

Took you long enough to realize what we have all been feeling for months !

Years You Mean ??

[Nong Khai Man]

15 hours ago, overherebc said:

Months???

Try 2 years.  ????????

Better try 3 Years !!

[Bruntoid]

17 hours ago, Mavideol said:

he was just venting, he's not worried at all, if he were worried he would have made a move (depreciating the baht) long time ago, he knows tourists are less than expected, exports are slowing on a daily basis and yet the bath still very strong

You can’t just depreciate your currency without running the risk of being accused of currency manipulation which will bring you sanctions which will bring you far more pain than a strong currency. 
 

And you got all that for free ! 

[ross163103]

I remember a few years back when the govt assured the people they could keep the baht at around 36 to the USD.....yeah right!

[ExpatOilWorker]

24 minutes ago, hobz said:

Can't they just print a bunch of money and and massively lower interest rates? Wouldn't that weaken the baht while at the same time stimulating the economy?

 

Ps. I'm obviously not an economic major ????

Have a look at Venezuela and Argentina how well that works. Financial uncertainty and instability will kill any kind of long term growth.

[brianthainess]

4 hours ago, soalbundy said:

he was just venting, he's not worried at all, if he were worried he would have made a move (depreciating the baht) long time ago, he knows tourists are less than expected, exports are slowing on a daily basis and yet the bath still very strong

I know one bath now is 212 euro.????

[uncleeagle]

The reason the Bhat is strong is that exports vastly exceed imports and the reason for that is unfair tariffs and protectionism. Just look at the prices of imported items such as wine.

 

If Thailand is able to tackle its xenophobia, absence of ethics and get that you cant dump your exports on the world but then do everything possible to prevent imports, then its surplus will narrow and its currency will moderate.

 

But I believe they cant get over themselves and their petty, greedy, xenophobic and narrow minded way of thinking so in the end the currency will only weaken when exports collapse due to their high prices or natural disaster such as drought, or when foreign countries decide enough is enough with Thai protectionism and hypocricy and apply their own punitive taxes on Thai goods, or when the domestic debt pyramid comes crashing down on their thick heads.

 

So when it weakens, finally, it will weaken a lot and in an an uncontrolled manner, a sort of forced loss of face reminiscent of 97.

[agood1963]

Things will only get better for Thais and farangs when Prayuth as left his post , and he his going nowhere .

 

[aBigSmile]

The baht <THB=TH> is Asia's best performing currency this year, rising 7.7% against the dollar, underpinned by the country's large current account surplus.

 

For once and for all, quit selling that BS!

The chief's lamentations are croc's tears. He full knows what needs to be done.

 

The THB is strong because the Thai government refuses the cut interest rate to near zero, as it's elsewhere around the world.

 

The reason they balk is their rich friends and backers, who are adamant on being paid handsomely for the loans they issue to to public.

 

 

[wgdanson]

8 minutes ago, brianthainess said:

I know one bath now is 212 euro.????

Then use the shower.   LOL

[Time Traveller]

51 minutes ago, hobz said:

Can't they just print a bunch of money and and massively lower interest rates? Wouldn't that weaken the baht while at the same time stimulating the economy?

 

Ps. I'm obviously not an economic major ????

Yes. But then they would get labelled a currency manipulator and there would be tariffs placed against Thailand. 

There would likely also be a side effect of fueling inflation and asset bubbles

[Angry Dragon]

2 hours ago, AussieBob18 said:

 

 

The Thai economy stats are fabricated and the Baht is at an unsustainable level - they are both going to crash - it is inevitable.   

wrong on both accounts, but i can understand the wishful thinking if you are reliant on a foreign pension to live in Thailand

[The Theory]

A coin has 2 faces. Sometimes one, sometimes the other. It keeps changing once in a while for reasons. But who takes the real advantage of either side and how that would be another story. 

[Angry Dragon]

2 hours ago, Thaidream said:

At present, the Thai budget i nott in balance- it is running a deficit and needs foreign funds to keep it running.

 

I was on board up to this point.  The Thai budget deficit is around 2.5% of GDP, mild compared to the industrial west (especially Japan).  Thailand now funds its budget deficits by issuing baht denominated bonds.  I don't see the need for foreign funds to keep it (the budget?) running.

[Time Traveller]

44 minutes ago, samran said:

Agree that there was significant inward investment then, but they still had to export those goods with the baht relatively high, and managed to do so. 

 

Also, it’s not as if that tap has been turned off. The value of BOI applications is up 70% yoy. 
 

The conditions which created the AFC were high domestic interest rates to defend the strong baht. All the while local companies borrowing offshore at relatively lower interest rates instead all assuming that there was minimal forex risk to pay back these loans. 
 

Today we haven’t got the high interest/inflation environment that went in tandem with a higher baht back then. 
 

 

there's definitely a lot of factors at play and always certain trade offs between having a strong or weaker currency.

What's being lost in all of this debate is that the reason THB is so strong is simply due to the success of the Thai economy,

 

In a free market system, the market will adjust so that weaker currencies become more competitive against the countries with stronger currencies. At the end of the day - do they really want to go down the road of manipulating their currency again? 

(To some extend BoT has been manipulating the Baht stronger by placing restrictions on capital outflows and by forcing thai exporters to repatriate dollars into baht. Both add one way pressure to the Baht to strengthen)

Over time, the trade surplus should re adjust and tourism revenue may fall back which in effect could see the Baht soften again. But how long that takes to play out is speculation

 

[spidermike007]

5 hours ago, legend49 said:

It will be labelled as FAKE news my Cha Cha

Of course. Men without honor always rely on deflection, obfuscation, denial, an attempt to discredit real news sources, the hiring of powerful PR firms, and confusion of the issues. Means nothing to those of us who see through them, as if they were Casper the not so friendly ghost. Unfortunately, a percentage of the population buys into it. Have you ever noticed when you are on the highway, most of the people line up, in the traffic lane that has the most traffic. Ever wonder what that is all about? 

[Winky Wilson]

Time you came out from under Gibraltar bud. Economics say that with surplus, you should lower interest rates. Really simple 101 economics here. 

[marqus12]

1 hour ago, uncleeagle said:

The reason the Bhat is strong is that exports vastly exceed imports and the reason for that is unfair tariffs and protectionism. Just look at the prices of imported items such as wine.

 

If Thailand is able to tackle its xenophobia, absence of ethics and get that you cant dump your exports on the world but then do everything possible to prevent imports, then its surplus will narrow and its currency will moderate.

 

But I believe they cant get over themselves and their petty, greedy, xenophobic and narrow minded way of thinking so in the end the currency will only weaken when exports collapse due to their high prices or natural disaster such as drought, or when foreign countries decide enough is enough with Thai protectionism and hypocricy and apply their own punitive taxes on Thai goods, or when the domestic debt pyramid comes crashing down on their thick heads.

 

So when it weakens, finally, it will weaken a lot and in an an uncontrolled manner, a sort of forced loss of face reminiscent of 97.

Best post.

If they imported on normal terms, the baht would behave similarly

to Malaysian ringgit and the economy would have more space.

Now they are suffocating and not from success but from unfair tariffs.

[samran]

12 minutes ago, Winky Wilson said:

Time you came out from under Gibraltar bud. Economics say that with surplus, you should lower interest rates. Really simple 101 economics here. 

I've never seen that 'rule'. Interest rates are set with reference to inflation, inflationary expectations and overall monetary stability.

 

In addition, you don't lower interest rates if it isn't going to actually have any affect. At the moment, I suspect that is why the BOT is keeping their powder dry.

[Mac98]

There is one avenue of hope for a better exchange rate. The wealthy in all countries like to see the occasional collapse of the economy as it allows them to go in and buy up all the foreclosed properties on the cheap. No, they don't lose big in the stock market, they get out early. You always hear of their 'going to cash' as a warning sign. No, they are not super smart, they helped bring it on. And after they have finished their buying spree they push policies that will help their purchases pay off. That's why those charts always look like roller coasters. Be ready, resorts and condos are overbuilt, tourists are disillusioned, expats are being harassed, foreign currency is battered like a Hong Kong student. It's all good news; 36b to the dollar is on the horizon now. Shouldn't cause more than a few thousand starvation deaths and a million bankruptcies to keep the roller coaster going.

[alzack]

19 hours ago, RotBenz8888 said:

He's not alone....

A genius for sure give him a pay rise

[Thaidream]

3 hours ago, samran said:

The fact is, Verathai would wipe the floor with about anyone moaning on this thread. And he'd do it in better English too. Those who think he's doing the bidding of Prayuth also know nothing about the dynamics of the BOT and the government of the day, the BOT being probably the only stubbornly independent organisation within the Thai government.

I am not putting myself in the same educational category as the BOT Governor. I don't have an education degree in Economics but I have watched economic trends in Thailand for 50 years.

 

If you believe that the BOT is fiercly independent-  you don't understand Thai psyche and society.  All the Finance Minster Somkid has to do is call  the Governor and indicate (not order) that the PM is interested in following a certain policy and it's done whether the BOT agrees or not. In fact, the  BOT Governors warning is an indication that the Government is following the wrong policy.  

 

The BOT doesn't have to lower interest rates- but they need capital controls which they have successfully used  before.   However, the current Government needs to keep the foreign money flowing inbound to finance it's budget deficit.

 

During the 1997 crash- the BOT intervened massivly trying to hold up the Baht on orders from the then Thai Government  General Chavalit and the markets got wind of the  account balance in the reserves account ; as well as what was happening in the Thai Banking  Industry (Google Finance One and Rakesh Saxena )and the route was on.

 

Thailand's overall budget is in deficit and will remain that way while the Government pursues the wrong economic policies- strong Baht- massive purchases of weapons and equipment from abroad- economic stimulus to the wrong sectors and ignoring the export market.

 

Not all of us are worried about are foreign income flows but about Thailand's future and our children's opportunities.