The baht's appreciation is poised to continue until year-end 2021 as a result of the weaker US dollar and Thailand's current account surplus, with an export recovery potentially tempered by the strong local currency, says a research house.
The baht's value against the greenback is forecast in a range of 29.50-30.50 at the end of next year, according to the Economic Intelligence Center (EIC), a research house under Siam Commercial Bank.
External factors contributing to the firmer baht include the weaker dollar, a larger US budget deficit, less volatility in global trade tensions and progress in Covid-19 vaccines, causing capital inflows to emerging market economies, said Yunyong Thaicharoen, first executive vice-president of EIC.
Additional factors strengthening the baht are Thailand's current account surplus and the country's robust external stability, together with a home bias investment behaviour by Thai investors, said Mr Yunyong.
"If the baht's value strengthens by around 3-5% per year, this is an acceptable level and allows local exporters to manage with the foreign exchange rate," he said.
"If the baht's appreciation exceeds 5% per year, this would affect overall exports."
The baht's strengthening value has caused jitters among policymakers and exporters as concerns abound about how the local currency's appreciation could offset the economic recovery, with exports bearing the brunt.
The baht appreciated to 29.98 in early trade on Wednesday, slipping below the 30-per-dollar mark, but retreated in afternoon trade to stand marginally weaker at 30.06.
Traders at two local banks said the central bank had stepped in to sell dollars to stem the local currency's strength, Reuters reported.
Since January 2014, the baht has appreciated by 20.6% based on the nominal effective exchange rate, an unadjusted weighted average rate at which one country's currency exchanges for a basket of multiple foreign currencies, and strengthened by 9.8% against the dollar, according to the EIC.
The Bank of Thailand recently unveiled three measures as part of efforts to curb the rapid appreciation of the baht and forge a new foreign exchange ecosystem.
These comprise allowing local residents to deposit funds in foreign currency deposit accounts in Thailand, relaxing regulations regarding investments in foreign securities and requiring investors to complete a registration process prior to investing in Thai debt securities, known as bond pre-trade registration.
The central bank has several instruments in the pipeline for managing the baht's value, with foreign exchange intervention as one of the key methods for currency management, said Mr Yunyong.