Bangkok: SCB EIC points out that Thailand's increasing gold exports are putting further pressure on the baht.
According to Thai News Agency, market confidence has increased following the formation of a new government and the potential interest rate cut by the Monetary Policy Committee (MPC), leading to capital inflows into the bond market. The report also highlights increased Thai gold exports, further pressuring the baht to appreciate.
Mr. Yanyong Thaicharoen, Chief Executive Officer, Economic and Sustainability Research at Siam Commercial Bank Economic Intelligence Center (SCB EIC), revealed the baht's continued appreciation, particularly over the past two weeks, which has accelerated compared to other regional countries. The baht basket index is nearing the level of the 1997 Tom Yum Kung crisis. However, this does not indicate an impending crisis for Thailand, as the current currency system is more resilient. Nonetheless, he noted that this appreciation could reduce Thailand's competitive edge in exports and tourism.
The baht has been trending towards accelerated appreciation over the past month due to external factors. The US dollar is weakening as US President Donald Trump aims to stimulate exports, and the US Federal Reserve is likely to cut interest rates due to a slowing economy.
Domestically, gold plays a significant role, as Thailand exports a substantial amount of gold. The recent rise in gold prices may lead Thai exporters to increase their gold exports, which are denominated in dollars. Consequently, when converted to baht, this will further strengthen the baht as gold prices rise.
Capital flow is another factor. The market perceives the new government as a short-term one, but with more clarity, this has boosted market confidence and increased investment in Thailand, especially in the government bond market. Moreover, it's expected that the MPC will further cut the policy interest rate, which will enhance investor returns from government bonds. SCB EIC anticipates that the MPC will cut the policy interest rate at least once a year and again in 2026.
"Last year, the baht appreciated more than 10% against Vietnam's currency, a significant advantage that has been lost. The hardest hit industries are those with low profits, such as agriculture and textiles," said Mr. Yanyong.
Regarding Thai gold exports abroad, it was observed that from late 2024 to early this year, exports to India were quite high, reaching several hundred percent, and are expected to gradually decrease. Despite rumors of increased Thai gold exports to Cambodia, no figures currently confirm this.
However, it has been found that when gold prices rise, Thai gold traders tend to export more. It is believed that trading gold in dollars instead of baht could alleviate pressure and improve currency balance. This is feasible now, but most investors still prefer trading in baht. It also serves as a means to diversify investments abroad.