Each 1% Baht rise costs exporters B1bn

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Each 1% Baht rise costs exporters B1bn 
Bangkok Post: 21 Aug 2010
Each 1% rise costs exporters B1bn

For every one per cent appreciation of the Thai baht the cost to car exporters is one billion baht in lost revenue, Payungsak Chartsuthipol, chairman of the Federation of Thai Industries (FTI), said on Friday.

Mr Payungsak said the private sector was worried about the current strength of the baht as it could well drag on until next year, due to a continuation of the economic slowdown in the US and the European Union.

“The baht's value could strengthen to 30 baht to the US dollar in 2011. This has prompted manufacturers to adjust their business plan based on a foreign exchange rate of 31 baht to the dollar, to minimise business risk,” he said.

However, the private sector was confident that the Bank of Thailand would be able to stabilise the currency's value to keep it in line with other Asian countries’ currencies.

The FTI chairman was concerned that a strong baht would hurt car exports because every one per cent rise in the strength of the baht would cost vehicle makers about one billion baht in export revenue.

“Since the beginning of the year, the baht has strengthened by eight per cent, reducing automobile export values by nearly 10 billion baht.

"If the situation continues, Japanese car makers could scrap plans to move their production bases to Thailand,” said Mr Payungsak.


http://www.bangkokpost.com/business/economics/192120/1-in-baht-appreciation-costs-b1bn

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Exchange-rate risk challenges growing

* Published: 21/08/2010 at 12:00 AM
* Newspaper section: Business

Managing monetary and fiscal policy will become more challenging in the future, as the baht is expected to continue to gain on foreign fund flows, according to Somphob Manarungsan, an economist at Chulalongkorn University.

Exchange-rate risk will increase for Thai businesses as liquidity moves from the US and Europe to emerging markets such as Thailand, he said at a conference held yesterday by the Bank of Tokyo-Mitsubishi UFJ.

The baht is now at its strongest level since 2008, thanks to steady capital inflows driven by strong exports and portfolio investment. The currency, up 5.7% for the year to date, closed yesterday at 31.49/53 to the US dollar, compared with 31.52/57 on Thursday.

Dr Somphob cautioned that capital flows would remain volatile given the uncertainties in the global economic market.

"Asian markets, including Thailand, have benefited from the flood in portfolio investment into the region. But money flows could reverse quickly if there is a problem," he said.

"Not only in the equities markets, but the bond market as well. The rise in bond prices while other asset classes have fallen has pulled yields downward."

The Stock Exchange of Thailand index has risen 21% for the year to date, thanks in part to net buying by foreign investors worth 2 billion baht for the year. The index, which is closing on its highest levels in three years, closed yesterday at 893.92 points, up 2.69, in heavy trade worth 40.23 billion baht.

Sukit Udomsirikul, a senior vice-president at SCB Securities, said the index could reach 960 points based on a valuation of 12 times forward earnings.

"It will take even stronger economic fundamental improvements however for the SET to reach 1,000 points," he added.

In any case, Dr Somphob said the central bank would face challenges in managing monetary policy to avoid an excessive interest rate gap that could further spur inflows of "hot money".

Policymakers also have to consider how to take advantage of a stronger baht, such as through hastening capital goods imports for public investment.

With economic growth expected to top 10% for the first half of the year, most analysts expect the Bank of Thailand to raise its one-day policy rate, now at 1.5%, when it next meets on Aug 25 to help curb inflationary pressure over the next several quarters.

But with the US economy stalled and short-term interest rates still essentially zero, a local rate hike would widen the rate gap and potentially draw even more capital inflows, putting added pressure on the baht to appreciate against the US dollar.

Roong Sanguanruang, chief market analyst, for Bank of Tokyo-Mitsubishi UFJ, Bangkok branch, said the baht could reach 30.75 to the dollar by mid-2011 due to the favourable growth outlook and current account surplus.


http://www.bangkokpost.com/business/economics/192195/exchange-rate-risk-challenges-growing