Currency analyst explains Thai baht’s meteoric rise against ringgit

The baht is trading at RM13 for 100 baht — its highest level against the ringgit in recent times. (AFP pic)

PETALING JAYA: The Thai baht looks primed to perform better than the ringgit in 2019.

Currently, the baht is trading at RM13 for 100 baht — its highest level against the ringgit in recent times.

There are several factors that have contributed to the appreciation of the baht.

“One of the most compelling reasons for the upward movement of the Thai unit has been the widening current account surplus that Thailand is experiencing.

“The ringgit has appreciated against the greenback recently but this was not due to the strength of the ringgit but rather the underperformance of the US dollar,” said a currency strategist based in Singapore.

The Malaysian economy is caught in a quagmire currently as the new government, voted in after the 14th general election on May 9 last year, has not been very clear and decisive in its economic policies.

A case in point is the flip-flopping over the much-discussed East Cost Rail Link (ECRL) project, valued at RM110 billion by the government, with ministers coming out with contradictory statements.

The project was supposed to be shelved due to Malaysia’s tight budgetary position but certain statements made seem to suggest otherwise.

The currency strategist said this had somewhat eroded investor confidence in the economy which is suffering from the excesses of the previous BN government

“Thailand’s FX (foreign exchange) reserves, manufacturing and trade growth all demonstrate its economic resilience to a tougher external environment,” the currency strategist told FMT. The baht’s strength can continue, especially after the US dollar/Thai baht recently broke its five-year uptrend.

Professor Nazari Ismail, from Universiti Malaya.

Amid all the focus on the countdown towards the March 24 general election in Thailand, the strong economic figures coming out of the country have somehow slipped under the radar.

Official statistics recently released by the Thai finance ministry indicate that the Thai economy performed substantially better in 2018, compared with the corresponding period four years ago in 2014.

GDP growth in the first quarter of 2018 reached 4.8%, which is the highest in five years. This has in part been fuelled by a strong 6% rise in the export of goods and services as well as an increase in both private sector and public sector investments, registering 3.1% and 4% respectively.

One barometer of how efficiently an economy is running and the factors of production being used is the so-called “production capacity utilisation rate”.

In 2018, this important index increased from 63% in the first quarter of 2014 to 72.4% in the first quarter of 2018. Again, this was the country’s highest rate for the past five years.

Thailand’s booming tourist industry has played a key role in the country’s economic success, with the number of foreign tourists increasing virtually every year – from 25 million in 2014 to 35 million last year – a remarkable 40% increase in the span of only four years. Tourism accounts for 25% of Thailand’s GDP.

However, not all analysts agree that Thailand’s growth story is sustainable. Professor Nazari Ismail from Universiti Malaya begs to differ.

“Thailand’s reliance on external debt has risen again during this current period of growth. External debt in Thailand increased to US$158 billion (RM649 billion) in the third quarter of 2018 from US$154 billion (RM632 billion) in the second quarter of 2018.

“The third-quarter debt figure was at its all-time high and they may be headed for a crash,” Nazari told FMT.