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3 Jan 2014

Thai Economy

Depreciating Baht Supports Exports, but Steepens Inflation (Current Issue No. 2449)

The Baht fell to the weaker side of THB33.00/USD toward the end of the first week of 2014 amid mounting political tension in Thailand and the appreciating USD, following the Fed's decision to begin QE tapering – being factors that have heightened concern toward foreign capital outflows. However, the weakening Baht was also consistent with the trend in other Asian currencies.
Amid internal and external factors that will likely dent the Baht's value further, we at KResearch have assessed that the softening THB will help bolster the liquidity of Thai exporters who exchange USD into Baht, but it will not benefit the competitiveness of Thai exports much if other regional currencies weaken almost on a par or faster than the Baht. On the other hand, that depreciation will likely steepen inflation via prices for imported energy and raw materials, thus further dampening domestic spending that remains lackluster.

Meanwhile, the major beneficiaries of the weakening Baht will be exporters that utilize high local content, e.g., agricultural produce, food, gems & jewelry, fashion goods, travel and health services.

Thai Economy