Investors are concerned that the formation of a new government and political risk could lead to higher baht volatility over the next month, says Kasikornbank (KBank).
The bank predicts the baht will move in a range of 33.80-35.40 per US dollar during the next month because of internal and external factors.
The main determinant is the US Federal Reserve's policy rate direction, according to KBank.
After the next four weeks, the bank believes domestic politics will shape baht volatility, said Kobsit Silpachai, head of the bank's capital market research department.
The Fed is planning to hike its policy rate by a quarter of a percentage point twice more this year, starting in September and continuing in December, said Mr Kobsit.
The central bank already hiked its policy rate by a quarter-point earlier this month to a peak range of 5% to 5.25%, in line with its December estimate.
"Domestic politics is a risk factor that could trigger baht fluctuation against the dollar," he said.
"Investors are concerned about the formation of the new coalition government amid uncertainty following the general election."
Though the baht could be volatile against the dollar in the short term, it is expected to appreciate to 33.8 by the end of this year, according to KBank.
The tourism-driven economic recovery is expected to support baht appreciation in the second half of the year.
As for Thai GDP in fiscal 2023, KBank projected expansion of 3.7%, while foreign arrivals are estimated to tally 28.5 million, up from 11.2 million last year.
The number of foreign arrivals in the first four months of the year totalled 8.6 million.
The National Economic and Social Development Council is forecasting GDP growth of 2.7% this year.
In addition, Mr Kobsit said the Bank of Thailand is expected to increase its policy benchmark rate by 0.25 percentage points this month to 2%, up from 1.75%.
KBank expects the central bank to then maintain its policy rate at that level the remainder of the year, unless inflation flares up.
If the new government fulfils its pledge to increase the daily minimum wage amid rising inflation, it is possible the central bank could raise its policy rate above 2% this year, he said.
The central bank intends to follow the new government's economic policies.
In 2022, the minimum monthly wage in Thailand was $293, beating the tally of $275 for Malaysia and $193 in Vietnam. However, the Thai rate lagged $307 in Indonesia and $308 in the Philippines, according to KBank.