The baht on Monday surged against a significant fall in the US dollar mainly due to the sudden collapse of Silicon Valley Bank (SVB) and the market's expectation that the US Federal Reserve (Fed) would slow down its policy rate hikes.
On Monday, the baht opened at 34.65 per dollar, after closing at 35.02 last week.
Due to the fallout from SVB's collapse, the market predicts that the Fed will increase its policy rate by lower than 50 basis points this month, and the terminal rate is expected to be no higher than 5.50% around the middle of the year.
After that the Fed is likely to reduce its policy benchmark rate to 5% at the end of the year, said Poon Panichpibool, a market strategist at Krungthai Bank.
Mr Poon urged the market to closely monitor the US government's solutions to this issue and follow US economic data updates, especially the inflation rate, which would impact the Fed Fund rate and capital movement.
With this scenario, the baht is expected to move in the range of 34.25-35.25 to the dollar this week, said Mr Poon.
The Bank of Thailand's assistant governor, Suwannee Jatsadasak, said the baht has appreciated compared with the greenback due to the closure of US banks.
However, she insisted the baht has still moved in line with regional currencies. The market expects the Fed would slow down to increase its policy rate because of the fallout from the US banks and a sharp dollar weakness against other currencies. This factor would continue to pressure the global money market and the baht's movement.
According to Ms Suwannee, the fallout of SVB's collapse would also have a limited impact on Thailand's financial stability because local commercial banks have no direct exposure to the troubled US bank.
In addition, the total exposure of local banks in startups and fintech firms globally represents a marginal level of lower than 1% of Thai banks' capital.
At the same time, no banks are investing in digital assets, while their subsidiaries invest in digital assets worth around 200 million baht. The central bank also strictly supervises their investment in digital assets and venture capital.
It stipulates a ceiling rate for investment and requires strong conditions of the capital reserve for such investment.
"The cautious regulation is a safeguard to protect depositors for banks' investment in a digital asset or venture capital firms," she said.
Amonthep Chawla, chief economist at CIMB Thai Bank, said the closure of the two US banks, SVB and Signature, is mainly due to a liquidity crunch in the US market after the hawkish policy rate hike of the Fed Fund rate. The US government has already announced actions to shore up depositors.
The problem is unlikely to affect the overall US banking industry adversely, and it would not impact the Thai banking sector.
Mr Amonthep predicted the central bank would raise its policy rate only one time this month, increasing the policy rate from 1.5% to 1.75%.
"The closure of the two US banks provide a good lesson for the Bank of Thailand. Too high an increase in policy rate could affect the economy and business sector more than expected. So, we forecast it would raise its policy rate by only one time this month and raise the policy rate from 1.5% to 1.75%," he said.
A source in the banking sector who requested anonymity said the central bank demanded financial institutions and venture capital firms report any deposit or financial exposure with SVB on Monday.