BAY: Baht to continue rise on GDP in 2018

BAY: Baht to continue rise on GDP in 2018

The baht is tipped to continue its gradual appreciation next year, driven by improved economic growth prospects among Asian economies and the normalisation of the US Federal Reserve's monetary policy, says the Bank of Ayudhya (BAY).

Since Asean economies have positive growth prospects for 2018, this will attract international trade, foreign direct investment and inbound tourism, causing greater foreign capital inflows into the region and inducing appreciation in regional currencies, said Tak Bunnag, BAY's head of global markets group.

"There is a possibility the baht could peak at 31.75 against the greenback, in line with Asian economic growth and export growth led by China. The improving economic growth momentum would also benefit Asean economies, especially Cambodia, Laos, Myanmar, Vietnam and Thailand," he said.

For next year's first quarter, the local currency's value is expected to range within 32.25 to 33.75 baht against the greenback, strengthening to between 32.25 and 33.50 in the second quarter.

The baht is expected to continue appreciating to 32-33.50 per dollar in the third quarter, while the appreciating trend is projected at 31.75-33.25 baht in the last quarter.

Mr Tak said geopolitical developments and the Fed's monetary policy stance under the new Fed governor are also key factors depressing the baht's value next year. Financial markets will monitor Fed governor Jerome Powell's monetary policy decisions as he begins his term next month, he said.

Markets have predicted that the Fed will increase interest rates twice in the second half of next year, a rise from the existing rate between 1-1.25%, said Mr Tak.

Movement in the US monetary policy will affect monetary policy management of other central banks globally, with the monetary policy committee structure of the Bank of Japan poised to make changes in the first quarter of next year, he said.

General elections taking place in Italy, Germany and Thailand together with the US midterm elections will also have an impact on economic policies in these countries, said Mr Tak.

Under this scenario, the baht is expected to appreciate further, with greater currency volatility.

Mr Tak said banks, including BAY, have launched a foreign exchange hedging campaign to minimise foreign exchange risk for exporters and importers.

The campaign is a collaboration between the government and the Thai Bankers Association. Around 20 business operators have joined the bank's campaign, mostly importers.

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