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Standard Chartered predicts baht fightback
Published: 16/10/2015 at 03:26 AM
Newspaper section: Business

The baht's rise against the US dollar is becoming a trend, with the appreciation expected to continue for the rest of the year as the delay of the US Federal Reserve's first rate rise since the global financial crisis continues, says Standard Chartered Bank.

The baht could rise to 35 versus the greenback at the end of this year, strengthening to 34 in 2016 if the Fed maintains its ultra-low rate in December's policy rate call, said senior economist Usara Wilaipich.

Should the Fed nudge up the policy rate in December's meeting, the baht could still hit 34.75 at the end of next year, she said, adding this scenario is based on a dollar bull market ending by the first half of next year.

"We expect it is more than 50% likely the US central bank will keep its policy rate unchanged in December after the Fed members hinted as much for a while. If this view holds, US bond yields will spike while foreign capital will flow into emerging markets," said Mrs Usara.

A series of mixed data out of the world's largest economy and the fragile state of other big economies, in particular China, has dented the US rate rise view and weakened the dollar.

The baht rose yesterday to 35.21-35.23, the highest level since August, from 35.54-35.56 on Wednesday. The local currency gained back nearly 3% since last week, narrowing its depreciation to 7.3% this year.

As a rapid run-up in the baht is likely, she recommended business operators hedge against foreign exchange risk.

The research house forecast Thailand's GDP would increase to 4% next year from 2.9% this year and public investment in infrastructure projects, spanning through 2020, would be the key engine driving the economy.

Standard Chartered Bank's view on Thai economic growth in 2016 is more optimistic than the Thai central bank, which earlier slashed its outlook to 3.7% from 4.1%. The former's growth forecast assumes exports grow 1-3% next year, up from a 5% contraction this year.

Private investment and consumption are expected to gather pace following a wave of government stimulus packages, she said. The Thai government is shifting towards a domestic-driven economy amid bleak export prospects because of a sluggish global economic recovery, setting a new normal in Thai economic growth, said Mrs Usara.

"If these new policies bear fruit, we estimate it could raise this new-normal growth to at least 4.5% per year between 2016 and 2023, compared with 2.9% per year on average during 2008 to 2014," she said.

However, Mrs Usara said there are two key risks for the plan -- execution of the investment plan and political uncertainty should an election ever happen.

Narongchai Akrasanee, chairman of MFC Asset Management and former energy minister, said the Thai economy would grow below 3% this year despite the recent stimulus measures.

He estimates growth will reach 3-4% next year, largely underpinned by public investment. Mr Narongchai expects the Fed to keep its policy rate on hold this year as the global economy still looks gloomy.

www.bangkokpost.com/business/news/731788/standard-chartered-predicts-baht-fightback