The Monetary Policy Committee (MPC) will unlikely cut the policy interest rate this year, judging from its previously announced positions and track records, says Andre de Silva, HSBC Global Research's managing director and head of Asia-Pacific rates.
The baht will likely rise by 2-3% to between 29.20 and 28.90 this year, says Mr de Silva.
The MPC's upward revision of economic growth this year and its dismissal that an interest rate cut is not a main tool to slow foreign capital inflows indicate it may keep the interest rate unchanged throughout 2013 but with a growing chance of an increase late in the year.
"The key reason of the baht appreciation at this juncture is quantitative easing by major central banks _ namely, the Fed [US Federal Reserve], the Bank of Japan and the Bank of England. A rate cut would not stop the tide of the inflows," he said.
Mr de Silva said capital inflows to the Thai market has exceeded those to most regional economies so far this year. Most of the funds have gone to speculating on short-term local bonds.
But he said as 2013 advances, Malaysia will likely be the region's largest recipient of capital inflows.
"The surge of capital inflows in early January is for short-term speculative purpose in anticipation of currency appreciation, partly to catch up with other currencies. But in the medium term, Malaysia will be the largest recipient of the inflows, as the market is less regulated. And there is a lot more tolerance for currency appreciation [in Malaysia]," Mr de Silva said.
"Thailand, South Korea and Malaysia stood to receive relative more capital inflows than others in the region, because of a high correlation between the local markets and the US Treasury, which makes investors turn to their assets easily from the dollar."
He said an interest rate cut by the Philippine central bank to stem the peso appreciation has in turn led to the strengthening of the currency.The policy of Japan's new government to have the Bank of Japan step up money injection into the economy next year would result in the appreciation of regional currencies against the yen.
But Thailand would be less affected than South Korea and Taiwan, as it is a large base in the Japanese production supply chain rather than a direct competitor with the country, said Mr de Silva.
He said the baht will likely appreciate by 2-3% to within a range of 29.20 to 28.90 to the dollar from 29.88 now, while the yuan is set to gain 1-1.5% this year.
The Bank of Thailand will likely intervene in the foreign exchange market to smooth the baht appreciation, Mr de Silva said, adding that he did not expect harsh capital-control measures.
Meanwhile, Bunluasak Pussarungsri, the head of research at CIMB Thai Bank (CIMBT), anticipates domestic consumption and investment will slow in the second half after showing strong growth from last year after the 2011 flood crisis.
CIMBT has revised its GDP projection to 4.5% from a range of 4.5% to 5% earlier in light of last year's better-than-expected second half.
Collecting tax on investments of less than one year and using international reserves for sovereign wealth fund investment can also help, he said.
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Writer: Parista Yuthamanop & Somruedi Banchongduang