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1 Oct 2021

Econ Digest

The Baht weakens in response to the Fed’s signals to start tapering QE in November 2021 and end it around mid-2022, while assessing the timing of rate hike


At its meeting on September 21-22, 2021, the Federal Reserve (Fed) held its policy rate steady at 0.00-0.25% and kept the QE scale unchanged. However, the Fed Chairman has signaled that the Fed is likely to begin scaling back its asset purchases via the QE measure in November 2021 and to end it by mid-2022. Meanwhile, the latest dot plot reflects the view of half of Fed officials that the Fed could see a rate hike as early as next year, much sooner than previous dot plots suggested, despite pending a reassessment on the economic and COVID-19 pandemic situations at that time.

Due to the Fed’s signals, the Thai Baht weakened to THB33.60/USD on the morning of 23 September, its weakest level in four years, before paring losses somewhat later. KResearch views that the depreciation of the Thai Baht reflects the considerable influence of the news of Fed’s QE tapering, so the chance of further depreciation of the Thai Baht will depend on US economic recovery and whether the US labor market data will present as better than expected. Conversely, if the U.S. economic and inflation data are weaker than estimated, the US Dollar could also soften.

Looking to the remainder of 2021, KResearch views that important factors that will determine the Baht’s value are: 1) the Fed’s QE tapering; and 2) the COVID-19 pandemic situation and vaccination status at home. Assessment of the economic foundations between the US and Thailand reveals that the Fed’s plan to exit its accommodative monetary policy before 2021 is an important factor supporting the appreciation of the US Dollar, causing the Thai Baht to fluctuate within a level below THB33.00/USD for most of the rest of 2021. Therefore, if the depreciation of the Thai Baht becomes more pronounced as the result of the various situations described above, importers will need to consider gradually entering into forward contracts to purchase the US Dollar, so as to mitigate some of the impact. 

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Econ Digest