Display mode (Doesn't show in master page preview)

6 May 2022

Econ Digest

The Thai Baht remains uncertain, despite short-term appreciation after the Fed did not signal acceleration of monetary policy tightening


        At least two points are noteworthy about the outcome of this round of the Fed meeting, which seem to be a cautious signal from the Fed to avoid being interpreted as tightening monetary policy more strictly to curb inflation. This signal disappointed investors, and markets made adjustments by selling dollars to take existing profits. The two points worth noting are: 1) The Fed has acknowledged that rate hikes have an impact on economic activity, and is not considering a single 75 basis point hike, even though the U.S. inflation rate will remain above the Fed’s target level in the next few months; 2) The Fed has yet to start shrinking its balance sheet in May and has divided the process into two phases, namely a monthly reduction of USD47.5 billion from June to August 2022, and a monthly reduction of USD95 billion starting in September 2022.

        Signals from the Fed not to speed up rate hikes and reduce its balance sheet could spur a US dollar sell-off in the short-term, and push other major currencies and Asian currencies to return stronger, including the Thai baht which is set to rebound and test the THB34.00/USD mark. However, KResearch believes that the Thai Baht may still face depreciation pressure in the next few months mainly from three factors: 1) Policy rates in the U.S.A. and Thailand are moving in different directions. The Fed continues to raise interest rates to address inflation, but the Bank of Thailand has kept interest rates unchanged at 0.50% to support economic recovery; 2) Thailand’s current account balance and the overall economy, which are the fundamentals for the Thai Baht, are still at weak levels as the inbound tourism market has not fully recovered despite opening to foreign tourists; 3) The RMB and JPY are tending to depreciate as the economy slows, putting pressure on the overall movement of Asian currencies.

        Therefore, importers still need to be cautious about the direction of the Thai Baht, as it could depreciate to THB34.50/USD or even lower in the next 1-2 quarters. However, the depreciation pressure on the Thai Baht may ease by the end of the year, and it may have a chance to pick up, because the U.S. federal funds rate may be higher than the Fed’s estimated long-term interest rate of 2.40% by the end of the year, and the market has widely known the Fed’s rate hike. In addition, investors’ focus may begin to shift to reassessing the possibility of interest rate hikes by other Asian central banks, including Thailand. The Bank of Thailand’s Monetary Policy Committee (MPC) may also consider the appropriate timing for a rate hike, especially if the number of foreign tourists entering Thailand during the peak tourism season recovers significantly, and domestic economic activity gradually recovers, which could help drive the Thai economy get back to pre-COVID-19 crisis levels.

Scan QR Code

QR Code


This research paper is published for general public. It is made up of various sources. Trustworthy, but the company can not authenticate. reliability The information may be changed at any time without prior notice. Data users need to be careful about the use of information. The Company will not be liable to any user or person for any damages arising from such use. The information in this report does not constitute an offer. Or advice on business decisions Anyhow.

Econ Digest