Baht volatility, following a surge to a 19-month high against the US dollar, is becoming a big concern among businesses, said Kriengkrai Thiennukul, the FTI chairman, reports the Bangkok Post.
The baht opened on Sept 23 at 32.92 per dollar, compared with 33.60 baht at closing on Sept 20. On Thursday (Sept 26) the baht was quoted at 32.68 on average, according to the Bank of Thailand. The currency was trading close to 37 to the dollar in late June but has appreciated steadily since then.
This is not good for manufacturers competing with neighbouring nations in the global market, said Mr Kriengkrai.
Thai entrepreneurs face higher financial costs because of elevated lending rates in the country, he said. They cannot take full advantage of free trade agreements (FTAs), while nations such as Vietnam have more FTAs signed, said Mr Kriengkrai.
Businesses also shoulder high energy costs, he said.
“Agricultural product and food exporters are affected by the stronger baht as they earn less profit,” he said.
“Many manufacturers in these sectors cannot develop innovative products to boost sales, so the current profit margin is low.”
Mr Kriengkrai attributed the latest baht appreciation to the US Federal Reserve’s decision to cut interest rates by 50 basis points.
The Thai Industries Sentiment Index fell to 87.7 points in August amid a stagnant economy, a strengthening baht and the impact of severe flooding in the North, according to the FTI.
Manufacturers were worried about exports in August as the baht rose from 36.46 to the dollar in July to 34.92 last month.
Pricier exports as a result of a stronger baht are fuelling concerns among entrepreneurs over the impact of the high levels of household debt and the state policy to raise the daily minimum wage to 400 baht, which will deal a further blow to labour-intensive businesses.
The FTI called on the government to launch new measures to better help manufacturers, especially small and medium-sized enterprises (SMEs), get through the economic hardship.
“Exporters and SMEs cannot compete with rivals in neighbouring countries while foreign tourists may not be happy when they have to pay more to buy products and services in Thailand,” said Mr Kriengkrai.
A source from a large inbound tour operator, who asked not to be named, said the earlier baht appreciation over other Asian currencies was worrying operators.
Tourists may see Thailand as a less desirable destination and opt for other countries such as Japan, the source said.
DISCUSSION SET FOR BAHT, INFLATION
The Finance Ministry is scheduled to discuss the inflation framework and exchange rate issues with the Bank of Thailand next week, said the Bangkok Post in a separate report.
According to Deputy Finance Minister Paopoom Rojanasakul, the discussions will focus on finding ways to maintain the exchange rate at an appropriate level given the baht’s recent rapid appreciation.
“The local currency is more volatile against the greenback than the currencies of our regional peers, particularly our trading competitors,” said Mr Paopoom.
The discussions will also cover the economic outlook and the framework for managing inflation, he said.
“We need to sit down and discuss these issues because we cannot allow the currency to continue appreciating, as it is affecting the country’s exports and tourism,” said Mr Paopoom.
He said the baht had risen quickly and become volatile, strengthening from B36 per dollar to 33 and beyond, marking a 10% increase, which is concerning.
Commenting on possible baht appreciation if left unchecked, Mr Paopoom said it largely depends on global financial trends.
Interest rates are being slashed in various regions of the world, which has contributed to the baht’s appreciation, he said.
If no action is taken, it could send a negative signal, said Mr Paopoom.
“Thailand’s monetary policy needs to align with global financial trends, as we are not isolated from the rest of the world,” he said.
“If our monetary policy is misaligned with other nations’ policies, we will not be able to address the baht’s volatility. We are an open economy, not a closed one. Issues such as economic geography and monetary policy are crucial.”
Regarding changes to the inflation management framework in 2025, Mr Paopoom said the ministry needs to consult on this matter with the central bank.
Once a conclusion is reached, the details will be made public, he said.