Baht gain likely if central bank leaves rate unchanged

The baht could appreciate beyond 33 to the dollar, from 33.40 as of Tuesday, if the Bank of Thailand decides to keep its policy interest rate unchanged at 2.50% on Wednesday, according to Kasikorn Research Center (K-Research).
Kanjana Chockpisansin, head of research, banking and the financial sector at the think tank, said K-Research expects the Thai currency to move in a range of 32.90 and 33.70 to the dollar this week.
The baht was trading at 33.25/27 early on Tuesday, compared with Friday’s close of 33.34, but eased to around 33.40 by midday. The dollar held firm near a two-month peak and investors grew cautious ahead of key monetary policy decisions due this week.
“Regional currencies realised the effect of the market’s disappointment about China’s economic stimulus package announced during the weekend,” Ms Kanjana told the Bangkok Post.
“Meanwhile, the dollar is still supported by the likelihood that the Federal Reserve might cut US rates less than previously forecast, as economic data there remained solid.”
According to Ms Kanjana, the market believes the Fed will trim the federal funds rate by no more than 25 basis points (bps) at its two remaining meetings this year, or it might make no further reductions, after slashing the rate by 50bps last month. The current projection is a sharp contrast to a 50bps cut that investors previously anticipated.
In Thailand, K-Research expects the central bank’s Monetary Policy Committee to keep the policy rate at a 10-year high of 2.50% at its meeting on Wednesday.
“If Thai rates are unchanged, foreign funds would flow in and push the baht to appreciate to possibly reach 32.90 to the dollar,” said Ms Kanjana, adding that the last time the baht traded above 33 was Oct 2.
K-Research expects the Thai currency to finish somewhere between 33 and 34 to the dollar by year-end, stronger than an earlier forecast of 34.50, she added.
Rakpong Chaisuparakul, senior vice-president at KGI Securities (Thailand), said “there is a good chance the baht would strengthen” as the central bank is likely to leave its benchmark rate untouched.
He expects the MPC statement after Wednesday’s meeting to conclude that “the current level is appropriate and supportive to economic growth”.  
Kanyapak Tantipipatpong, an adviser to the Thai National Shippers’ Council, said exporters would like the central bank to put more effort into maintaining the baht’s stability.
“The baht has been volatile a lot lately, putting Thai exporters in a difficult position in managing their cashflow,” she said. “The private sector would understand if the baht moves up and down in line with regional currencies.”