Prolonged Political Instability Affects Baht-Dollar Fluctuations

Extended political instability is intensifying baht fluctuations against the dollar due to Thailand’s ongoing delay in establishing a new government, the chief of the Bank of Thailand has stated.

The foreign exchange rate between the baht and the US dollar appears riskier to investors due to domestic political issues. After the May general election, various parties continue to argue over the formation of a new government.

Because of these underlying risks, the baht’s stability against the dollar has been affected, stated central bank governor Sethaput Suthiwartnarueput during a Wednesday seminar organized by the bank’s southern region office.

“Recent baht volatility is mainly driven by the movement of the US federal funds rate (monetary policy of the US Federal Reserve),” he remarked.

“Domestic political uncertainty is also playing a key role, causing pressure for baht fluctuation against the dollar.”

Year-to-date, the baht has weakened by 9% compared to the dollar, surpassing the fluctuations of the Malaysian ringgit, Indonesian rupiah, and Philippine peso.

Typically, Japan’s yen and South Korea’s won experience higher fluctuations against the US dollar than other Asian currencies.

The movement of the Chinese yuan, influenced by extensive business interactions between China and Thailand, including trade, tourism, and foreign direct investments, also impacts the baht.

Additionally, Mr. Sethaput highlighted that local gold trading plays a role in baht fluctuations.

The central bank advises businesses to adopt foreign exchange hedging, utilize foreign currency accounts for managing liquidity, and settle in local currency.

Such tools are meant to aid businesses in mitigating foreign exchange risks amidst baht volatility, he mentioned.

Mr. Sethaput noted that China’s sluggish economic rebound adds to the uncertainties faced by both the global and Thai markets.

He further observed emerging vulnerabilities in China’s economy, especially within the housing industry and the swift expansion of private sector loans.

In light of these unpredictable scenarios, business leaders should bolster their resilience for unforeseen challenges, focusing less on cost-effectiveness. It’s essential to keep debt loads manageable, he added.

Mr. Sethaput stated that the lackluster performance of the Chinese economy in this year’s second quarter wouldn’t notably affect Thai tourism, especially with other markets, like Malaysia, still being active.

This year, the central bank projects 29 million foreign visitors, and 35.5 million in 2024.

He mentioned that a robust resurgence in tourism and steady domestic demand are the primary contributors to Thailand’s economic rebound this year, amidst slowing export orders.

Mr. Sethaput affirmed that the delay in government formation won’t influence the Bank of Thailand’s financial strategy.

From last August, the central bank has been gradually raising its policy rate, nearing its “neutral zone”.

“The smooth take-off of the Thai economy was completed last year. Now we are in the stage of a soft landing,” he mentioned.

Moving forward, the central bank will rely on economic data to guide its policy rate decisions, aligning with Thailand’s economic landscape, Mr. Sethaput conveyed.