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Exporters Warned As Baht Heads Towards 30 Per Dollar

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Exporters warned as baht heads towards 30 per dollar

By Wichit Chaitrong

The Nation

The baht is bracing for further appreciation, possibly approaching 30 per US dollar in the second quarter next year, according to the Bangkok branch of Bank of TokyoMitsubishi UFJ, which predicted heavy repercussions on exporters with lowmargin products.

Roong Sanguanruang, chief market analyst of the bank, said at a Thailand Market Association seminar on interest rates and the foreignexchange outlook yesterday that the baht was expected to move in the range of 30.7532.25 to the dollar in middle of next year. Earlier, Kasikornbank's treasurer expected the baht to end this year at 31 per dollar.

Coupled with the appreciation is greater volatility, Roong said. Movement of the US dollar was harder to predict because of the interaction of two main market forces. One predicts the exchange rate by guessing what the US Federal Reserve will do. The other force engages in risktaking. The market participants often interpret the same news differently, causing fluctuating movements of the exchange rate, she said.

The Chinese yuan is expected to continue to appreciate gradually, as the Chinese government tries to prevent export shocks caused by any sharp rise of its currency.

Other regional currencies will also appreciate in tandem. For example, the Indonesia rupiah and the Malaysia ringgit rose almost 10 per cent in one year against the dollar as of August 6, Roong said, while the baht rose about 5 per cent. But in the past few weeks the baht has risen sharply, a bit late compared with other currencies, she said. The potential for high growth has contributed to the strength of currencies in emerging Asia.

Roong also said the Bank of Thailand might increase its policy rate from 1.5 per cent to 2 per cent by the end of this year to curb inflation. The central bank would, however, be cautious about raising the rate because of the risk of an economic slowdown and political uncertainty.

The yen will also rise in the next 12 months but it will weaken in the long run because of persisting deflationary tendencies in Japan, she said.

Sompop Manarungsan, president of the Panyapiwat Institute of Technology, said exporters of labourintensive products would be hit hard by low margins. "A 10percent baht rise could make many exporters lose money," he said.

New central bank governor Prasarn Trairatvorakul will face a challenge over how to manage the baht as investors flee the US market and move their money into Asia, which recently has caused a sharp rise in the Thai stock market, he said.

The global economy also faces the risk of a bondbubble crisis that could devastate the global economy as the subprime crisis did in 2008, he warned. Bond prices have increased and driven down yields as investors seek safe havens.

While the United States is still implementing an expansionary monetary policy, Europe has started to implement exit strategies because of the threat of a publicdebt crisis. "Our government should follow Europe by reducing spending on populist programmes, otherwise the country could face a sovereign debt crisis in the near future," he warned.

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-- The Nation 2010-08-21

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Hum... I wonder why imported products haven't come down in price then? unsure.gif

Edited by Jimi007

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