The Thai economy's lower potential growth, a weaker current account surplus and increased capital outflows are pressuring baht appreciation over the longer term, say economists.
Roong Sanguanruang, senior vice-president for global markets planning at Bank of Ayudhya (Krungsri), said the baht faces higher limitations in terms of appreciating against the dollar because of the economy's reduced growth potential. Thailand's current account surplus has continued to decline, while foreign net capital outflows are rising, she said.
Ms Roong said several internal factors have supported the baht in the post-pandemic period, including an improved current account surplus driven by rising foreign tourist arrivals and solid international reserves. These factors have strengthened the local currency despite a firmer dollar, she noted.
During the pandemic, the country's current account balance was heavily affected by the absence of foreign tourists, resulting in a temporary deficit. However, as tourism recovered, the current account returned to a surplus.
However, she said the country's current account surplus is expected to decline compared to the situation before the pandemic due to structural issues within Thailand. Consequently, the potential for baht appreciation is limited amid the economy's lack of robust growth, ongoing capital outflows, and challenges in global trade dynamics.
"We see a cleavage in the current account, and its surplus position may possibly diminish over the longer term compared with the past. With this scenario, it would pressure the baht against the dollar," said Ms Roong.
Krungsri predicts that the baht will fluctuate between 34.50 baht and 36.75 baht to the dollar in this year's final quarter. In addition, the bank expects the Bank of Thailand's Monetary Policy Committee to maintain its policy rate at 2.5% throughout this year.
Supavud Saicheua, an advisor at Kiatnakin Phatra Financial Group (KKP), expects the dollar to continue appreciating against other currencies, including the baht, in line with the US economic outlook. This trend would exert pressure on the baht's strength compared with the greenback, he said.
According to Mr Supavud, the US Federal Reserve is expected to cut its policy rate late this year, ahead of the US presidential election in November. Donald Trump is expected to win the election, and his policies -- particularly retribution measures, significant immigration reductions, tax cut extensions, and tariff increases -- could drive higher inflation rates.
Under this scenario, the Fed might maintain its policy rate instead of cutting it, which could attract foreign capital inflows into US markets, Mr Supavud said during a KKP seminar on Thursday.
He said the Thai market is likely to continue experiencing net foreign capital outflows, adding that there had been a net capital outflow from the Thai market among foreign investors for five consecutive years prior to the pandemic. From 2015 to 2019, the average annual foreign net capital outflow stood at US$15.1 billion.