Overbought baht? Still rising…

The baht's credit-crunch derived decline looks but a blip (see chart, right) as the currency's long term uptrend, which dates back to the latter half of 2005, remains not only in tact, but even more steadfast as the central bank predicted earlier this month that the economy would grow in 2010 (its 2Q10 yoy growth stood at 9.1%) at the fastest pace since 1995.  And per The Economist last week, the IMF predicts full-year growth of 7%, ahead of Malaysia, Indonesia and the Philippines.  Undeterred by the potential for trade competitiveness erosion (exports rose for a 10th straight month in August versus last year, buoyed by a healthy demand for auto parts and electronics), Thai Finance Minister Korn Chatikavanij told reporters on Wednesday that the baht's gains were “unavoidable” because of the strong economy and that the currency was “likely to rise further” against the dollar.  That said, not everyone is so sanguine: local traders opine that prices of rice, for instance, can be expected to rise further; the benchmark 100 percent B grade Thai white rice was steady at $490 per ton earlier this week “but could rise over the next few weeks given a stronger baht,” per reports.  Moreover, worried about inflation the central bank last month raised interest rates for a second consecutive month, to 1.75 percent.  And Thanawat Polwichai, director of the Economic and Business Forecasting Centre at the University of the Thai Chamber of Commerce, called on the central bank at the beginning of the month to help defend the currency's seemingly unabated rise.  “The BoT should tell the public of its policy to curb the baht's value to suit  the current economy,” Mr Thanwat said, adding to reporters that “if the Thai currency strengthens to less than 30 baht to the USD in the fourth quarter of the year, Thailand would face damage of about 100 billion baht in revenue lost in the export and tourism sectors, in turn shrinking GDP growth by roughly one percentage point.

At 30.67 per dollar, just below its 13-month high, the baht has risen 8.8% this year, making it the third-best Asian performer after the Malaysian ringgit and the Japanese yen.  In fact, Chatikavanij mused, the government's plan to “fast-track infrastructure spending” would be aided by a stronger baht, since the cost of imports would be lessened.  The strong currency and humming economy stands in stark contrast to ever-simmering political unrest which periodically boils over into full fledged street violence.  Yet The Economist notes that “tourists have returned in search of beaches and bargains [and] investment continues to trickle in.”