Bangkok: SCB has highlighted the persistent volatility of the Thai baht, attributing the fluctuations to uncertain US import tariffs and capital flows from the US to Europe and Asia. The bank forecasts that the baht will strengthen, ranging between 31.50 and 32.50 baht per US dollar by the end of the year, and anticipates that the Monetary Policy Committee (MPC) will reduce interest rates twice more this year.
According to Thai News Agency, Mr. Patrick Poulia, Senior Executive Vice President and Head of Financial Markets at Siam Commercial Bank, disclosed that the current financial market poses significant challenges due to geopolitical tensions and trade wars affecting Thai businesses. The unpredictability of US President Donald Trump’s import tariff policies further complicates international trade operations, leading to periods where the baht fluctuates by as much as 30-40 satang overnight. In response to the rapidly evolving economic landscape, SCB Financial Markets has enhanced its role as a “strategic financial partner” for business customers, institutional investors, and retail clients. The bank now offers a suite of five products and solutions to address customer needs: Foreign Exchange (FX) business and risk management tools, expansion of FX products to support local currencies, digital channels like FX Online and FX API, Structured Notes investment products, and Electronic Foreign Exchange Deposit Accounts
(E-FCD).
Mr. Wachirawat Banchuen, Senior Financial Market Strategist at SCB, noted that the baht has experienced significant volatility this year, having depreciated to around 35.00 baht per US dollar before strengthening to about 32.40 baht per US dollar, marking a 7.4% change in less than two months. Despite the Thai economy’s projected slow growth this year, the baht’s strength persists, partly due to increased import taxes and protectionist measures, as well as fiscal initiatives by President Trump, which include heightened government spending and tax cuts. These factors have prompted investors to diversify away from US assets in favor of European and emerging Asian markets, resulting in a weaker US dollar and stronger regional currencies, including the baht. The recent inflow of capital into the Thai government bond market further reflects this trend.
Additionally, a de-escalation in the trade war and economic support measures from the Chinese government have led to a less-than-expected depreciation of the yuan, which, in turn, reduces depreciation pressure on the baht due to its close relationship with the yuan. The persistently high gold prices are also expected to support the baht’s appreciation.
However, SCB warns that the baht’s appreciation may be limited compared to other regional currencies due to historically low foreign investment in Thailand, resulting in minimal repatriation flows. Furthermore, foreign investors currently hold only about 9.8% of Thai government bonds, lower than other regional countries, while the proportion of Thai government bonds in the JPMorgan Government Bond Index-Emerging Markets has decreased to 8.8%. Consequently, capital flow into Asia remains low. SCB projects that the baht will stabilize around 31.50-32.50 baht per US dollar by year-end.
SCB also anticipates that the MPC will cut the policy interest rate two more times this year, reducing it to 1.25%.