There was an influx of capital flows in
Thai stock and bond markets after the US Presidential election and amid hopes
for COVID-19 vaccines. During November 1-19, 2020, such capital flows reached
THB69.7 billion, representing the highest level in 17 months, while the Baht
hit a new 10-month high of THB30.14/USD, before sliding to THB30.30/USD at the
time of writing this report. The strengthening of the Thai currency is a cause
for concern because it will likely undermine the recoveries of the overall Thai
business sector and economy.
Therefore,
the Bank of Thailand (BOT) introduced several measures to stabilize the Baht on
November 20, 2020. The BOT has relaxed regulations on the opening of Foreign
Currency Deposit (FCD) accounts, and has increased investment limits and
expanded investment options in foreign securities for Thai investors. Meanwhile,
foreign investors are required to complete a Bond Pre-Trade Registration prior
to investing in Thai debt instruments, in line with measures that have also
been adopted in many countries in Asia that welcome capital inflows and allow
investors to freely trade debt instruments, though they must have their
identity verified.
KResearch views that
the measures introduced by the BOT are aimed at coping with more capital flows that
might enter into the Thai financial market in future, since the US dollar tends
to weaken following the signals of the Federal Reserve (Fed) for monetary
easing, an external factor that cannot be avoided. The measures for Thai
investors are aimed at stimulating the purchase of foreign currencies and
increasing flexibility for capital outflows, which may slow down or reduce
appreciation pressures on the Baht. Meanwhile, the Bond Pre-Trade Registration
will upgrade the bond surveillance system which will allow close monitoring of foreign
investors’ behavior and thereby reduce volatility arising from foreign
investors’ short-term parking of funds, which may affect the Baht’s movements
during a specific period, though this measure is not intended to prevent
foreign capital inflows.
In addition, fundamental factors
including a current account surplus may drive up the Baht, while the US Dollar
will likely soften further in 2021 in line with the Fed’s quantitative easing
and signs to hold its policy rate at a low level for a long time. Given this,
KResearch expects that the Baht will pass THB30.00/USD in 2021 (KASIKORNBANK
projected that the Baht will stand in a range of THB29.00-29.25/USD at the end
of 2021). As a result, the BOT may have to intervene in the foreign exchange market
in order to reduce the short-term volatility of Thai currency while also
assessing the needs to introduce any new measures to maintain the Baht’s
stability in the future.
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