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7 Jul 2022

Econ Digest

Thai Baht … In comparison with other Asian currencies

        The Thai Baht and other Asian currencies have recently depreciated 5.0-8.5% (except for the JPY, which depreciated by 15.2%) to their lowest levels in years, amid a trend of Fed rate hikes outpacing Asian central banks. The Baht weakened to its weakest level against the dollar in nearly 6 and a half years, hitting the 36.35 Baht against the US dollar. At the same time, other currencies in Asia have experienced significant depreciation over the years. For example, the Japanese Yen fell to a new low in nearly 24 years, the Philippine Peso fell to a new low of 16 and a half years, the Korean Won fell to a new low of 13 years, the Malaysian Ringgit fell to a new low of 5 and a half years, the Vietnam Dong fell to a more than 2-year low, while the Indonesian Rupiah fell to a 1 year 10 months low.

        In addition to indirect effects on inflation, the devaluation of Asian currencies also affects trade differentials to varying degrees. Some countries have turned their trade balances into deficits as these countries need to import essential goods, especially oil and commodities, and the value of imports has accelerated due to currency depreciation. Taking Thailand as an example, the trade deficit in the first five months of 2022 is USD4.73 billion, the same as that of Japan, the Philippines and South Korea, but Malaysia, Indonesia and Vietnam still have trade surpluses, due to the high proportion of commodities and electronic products in the export commodity structure and the depreciation of each currency is relatively low.

         Although some countries are running surpluses in foreign trade, it must be acknowledged that the faster rate hike by the Fed has caused all Asian countries to face capital outflow pressures, partly reflected in the continued decline in foreign exchange reserve levels in many Asian countries since the beginning of 2022. In the case of Thailand, net foreign exchange reserves (including net forward positions) as of June 24, 2022, were approximately USD 28 billion lower than at the end of 2021.

        Thus, the situation Thailand has to deal with has similar characteristics to other countries in Asia, namely being affected by a stronger dollar. KResearch expects that if the Thai economy and tourism continue to recover in the next stage, the pressure on the depreciation of the Thai Baht is expected to gradually ease.

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Econ Digest