Strong Baht Hits Q4 Exports, Hurting Agricultural Shipments
August, 27 2024
Baht Appreciation and Monetary Policy
On August 21, 2024, the Monetary Policy Committee (MPC) voted 6-1 to keep the policy rate at 2.50%. The Thai economy continues to recover, driven by tourism and a gradual export rebound, but private consumption has slowed.
Following the meeting, the baht weakened slightly to 34.30 THB/USD, closing at 34.34 THB/USD, marking its strongest level in nearly 13 months. Year-to-date, the baht has depreciated only 0.2%. However, analysts note that the recent appreciation was largely driven by a weakening U.S. dollar, expectations of Fed rate cuts, and rising gold exports from Thailand.
Exporter Concerns Over Q4 Performance
Thai National Shippers’ Council (TNSC) Chairman Chaiyan Charoensuk expressed concerns over the baht's rapid appreciation, noting that it strengthened to 34.50 THB/USD from 36.00-36.50 THB/USD in July, a sharp 2 THB increase.
In H1 2024, Thai exports grew by 2%, supported by a weaker baht, which offset external economic challenges. However, a strong baht in H2 raises concerns for exporters, particularly for agriculture, which saw 20% export growth in H1.
With a stronger baht, agriculture is unlikely to drive exports in Q4, raising fears of a slowdown. The ideal exchange rate for competitiveness is 35-36 THB/USD, with exporters already struggling when the baht fell to 32 THB/USD.
Risk Management and Government Policy
Exporters are now cautious with orders for the next three months, as currency volatility adds pricing uncertainty. Some companies are seeking currency hedging, while others call for BOT intervention to stabilize the baht at a level aligned with competitors.
Baht Outlook for Year-End
According to Kasikorn Research Center, the baht has strengthened to 34.06 THB/USD, its strongest in 13 months. The appreciation is fueled by:
- Expectations of Fed rate cuts
- Record-high gold prices
- Capital inflows into Thai bonds
Kasikorn Research now adjusts its year-end baht forecast to 34.50 THB/USD, up from 36.00 THB/USD.