The Thai baht is experiencing a remarkable surge, approaching its highest quarterly rise since the Asian financial crisis. Since June, the baht has skyrocketed by 10% against the US dollar, prompting urgent calls for action from the tourism and export sectors to stabilize the currency. This dramatic ascent has raised alarm bells within the industry, highlighting the complex challenges facing Thailand’s economic landscape.
The baht’s surge, the highest gain since early 1998, is largely attributed to a decline in the US dollar ahead of recent Federal Reserve rate cuts, outpacing currency movements of Thailand’s trading partners. This swift appreciation, while seemingly positive, presents significant concerns for the country’s economic pillars: tourism and exports.
The Federation of Thai Industries (FTI) has expressed worry that the baht’s strength could drive international buyers towards more affordable alternatives, putting additional strain on exporters. While the tourism sector is benefiting from strong foreign visitor numbers, the Tourism Council of Thailand warns that the appreciating baht may soon curb spending on shopping and accommodations, impacting the industry’s crucial revenue stream.
This currency fluctuation poses a significant challenge for newly appointed Prime Minister Paetongtarn Shinawatra, who has vowed to stimulate Thailand’s economy and alleviate the cost of living. Despite the country’s GDP growth lagging behind regional competitors like Indonesia and the Philippines, tourism and exports have remained key economic bright spots. However, with exports accounting for nearly 60% of Thailand’s GDP, the baht’s rise complicates an already difficult landscape characterized by high production costs and an influx of cheaper Chinese imports.
FTI Chairman Kriengkrai Thiennukul stated, “The rapid baht gains are crippling exporters. They’re at their wits’ end and struggling to stay afloat. We need a stable baht and relief from high financing costs.” Deputy Finance Minister Paopoom emphasized the need for balance, urging that the baht should not be “too weak, too strong, or too volatile.”
In response to the growing volatility, BoT Governor Sethaput Suthiwartnarueput assured that the central bank is closely monitoring the baht’s movements to prevent drastic exchange rate fluctuations. The baht’s implied volatility against the dollar is currently at 9.12%, the highest level since January, significantly exceeding the year’s average of 7.98%. Meanwhile, foreign investment has surged, with $2.6 billion flowing into Thai bonds and stocks this quarter, further bolstering the currency and equities market. The impending BoT rate-setting meeting on October 16 will likely focus on the implications of the baht’s rally, as noted by Nattaporn Triratanasirikul, an economist at Kasikorn Research Centre.
While Thailand is still on track to achieve its goal of welcoming 36.7 million tourists and generating 2 trillion baht in revenue this year, with arrivals reaching nearly 25 million, a 31% increase from last year, industry leaders remain cautious. Australia & New Zealand Banking Group economist Krystal Tan highlighted that ongoing concerns regarding asset quality and uneven economic recovery could prompt monetary policy easing in the near future. While the baht’s rise hasn’t yet significantly impacted travelers, it may soon deter foreign tourists from spending freely.
Surawat Akaraworamat, Vice-President of the Tourism Council of Thailand, noted that a persistently strong baht could eventually lead to decreased tourist arrivals due to rising costs, a concern echoed by Suksit Suvunditkul, president of the southern chapter of the Thai Hotels Association. As Thailand navigates these economic challenges, the balance between a strong currency and a thriving tourism and export sector remains delicate, with industry stakeholders closely watching for any developments.
