Thailand is no stranger when it comes to hot money. This time around, officials have a new dynamic to worry about when it comes to cooling inflows from abroad: Donald Trump.
The Southeast Asian nation has seen a $3.4-billion flood this year, an influx that’s driven the baht to its highest since mid-2015. The problem is that any overt steps to curb gains in the exchange rate could draw the attention of Trump administration officials probing trading partners for measures that contribute to US trade deficits.
The current dilemma is a contrast with the years of Federal Reserve quantitative easing, when Thailand and other emerging markets took steps to slow capital inflows that made their exports less competitive. Ensuring against US retaliation may mean either living with the baht gains or coming up with steps not linked to currency transactions.
"Any easing back on foreign-exchange intervention by the BoT could result in further near-term baht strength, in the absence of any meaningful pick up in outflows," Khoon Goh, Singapore-based head of Asia research at Australia & New Zealand Banking Group Ltd said Tuesday. "They are worried about baht appreciation. Cutting supply of short-term bills probably won’t have much of an effect."
Thailand on Monday denied it is manipulating the baht, while the BoT said it may consider more steps to curb short-term inflows after a plan to cut bill issuance. ANZ sees a risk that Thailand could be placed on the monitoring list in the US Treasury’s next semi-annual report to Congress, a prospect which may discourage the BoT from intervention.
Thailand chalked up the 11th largest goods trade surplus with the US in 2016, according to data on the US Department of Commerce website. It continued to post a current-account surplus in the first two months of this year after a record 2016 while the foreign-exchange reserves rose 5.2% to $181 billion, a sign the BoT has bought dollars to stem baht gains.
"I don’t think the cut in bill supply will significantly impact the baht’s trend and they may continue intervention," said Jitipol Puksamatanan, Bangkok-based strategist at Krung Thai Bank, adding the baht may rise to as high as 34.10 per dollar over a month. "If we take lots of action, the U.S. could see it as an unfair currency practice. This is not an appropriate time for more measures or capital controls in the currency market."
The US Treasury’s report due around mid-April uses three criteria to determine if a trade partner is manipulating its currency. These are a bilateral trade surplus with the US at more than $20 billion, a current-account surplus of over 3% of GDP and buying foreign assets at 2% of output to weaken the currency. Thailand currently meets two of the three, according to ANZ.
Thailand’s trade surplus with the US stood at $18.9 billion in 2016, close to the $20-billion threshold and if this is met, the Asian nation would have met all three criteria for currency manipulation, ANZ said in its note.