Thai Central Bank Forecasts Stronger Baht, Might Hurt Tuna Industryff

Thailand’s central bank Governor Pridiyathorn Devakula said the baht will extend gains that have made it Asia's best performer this year. He shrugged off calls from the finance minister and exporters to stem the rally. Thai Union Frozen products Pcl, the country’s major tuna canner, is worried it will effect Thailand canned tuna exports negatively.

The baht is set for its best year since 1998, spurred by rising interest rates and inflows of overseas cash. It rallied this week, beyond a range of 37.75-38.25 to the dollar that Finance Minister Thanong Bidaya said on July 17 was the “right level” for the baht, threatening export-led economic growth.

“It has to strengthen,” Pridiyathorn said in an interview in Bangkok Aug. 7. “If you go against the trend, you are dead. I’m telling the exporters this so they can prepare themselves.”

The currency traded at 37.69 against the dollar in Bangkok Monday, the highest since May 12. Thanong last month said he’d be concerned should it trade above 37.50, or 0.5 stronger than Monday’s level.

Global investors have increased purchases of Thai shares this year as first quarter growth climbed to 6 percent, the fastest pace since September 2004. Temasek Holdings Pte, a Singapore government investment fund, bought 96.12 percent of Thailand’s Shin Corp., a telecommunications group, for $3.7 billion between January and March.

Thailand’s central bank has increased its benchmark interest rate four times this year to 5 percent, increasing demand for the yield available on the country's bonds.

“The baht’s performed well this year,” Usara Wilaipich, an economist at Standard Chartered Bank, said in Bangkok. “It can keep going up and benefit from more inflows.”

A stronger currency may erode exporters’ earnings as it makes their shipments, which account for about half of the economy, more expensive abroad.

The pace of Thailand’s export growth slowed to 17.6 percent in June from a year ago, compared with 19.1 percent a month before, according to a government report released July 31.

Export Growth

“Appreciation hurts exports and sharp gains would raise concern about the economic outlook,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “I don’t see one-way strengthening in the baht against the dollar.”

The baht is the best performer this year among the 15 Asia- Pacific currencies Bloomberg tracks. It touched the strongest since 2000 in May, and is heading for its best year since the currency recovered from the Asian financial crisis of 1997-1998.

“I am comfortable as long as the baht is as strong as the regional currencies,” Finance Minister Thanong said July 17, adding he would be “worried” if it gained past 37.50.

Pridiyathorn said the central bank won’t try to buck the trend of the currency’s appreciation, and will buy or sell only to curb sudden movements in the exchange rate.

“We simply make sure the volatility is not too high,” he said. “We are a floating regime, not fixed.”

The baht needs to weaken to around 38 to 39 per dollar for the country’s exporters to compete, said Thiraphong Chansiri, president of Thai Union Frozen Products Pcl, the world’s second- biggest tuna canner, in an interview on July 25.

Increased Spending

Pridiyathorn expects the economy to maintain its pace of growth next year as the government pushes ahead with plans for as much as 1.7 trillion baht ($45 billion) in spending on roads and subways over five years as the political crisis is resolved.

Government spending in the second half will rise 11 percent from a year earlier, according to central bank estimates. It fell in the first half as ministries and departments held back because of the absence of an elected government.

The central bank forecasts the economy will expand between 4 percent and 5.3 percent in 2007, compared with a rate of between 4 percent and 5 percent for 2006.

“In the first half of this year we saw a slowdown in government expenditure as we entered this political vacuum,” said Pridiyathorn. “The Thai economy has proved to be quite resilient.”