Post by : Raman

Thailand may be approaching another economic challenge as the local currency, the baht, continues to strengthen. Experts warn that the baht’s rally could create setbacks for an economy that is already struggling, leaving officials with limited options to manage the situation.

This year, the baht has risen about 6% against the US dollar, reaching its highest level since 2021, making it one of the best-performing currencies in the region. The situation recalls the Asian financial crisis of the 1990s, when an overvalued baht triggered widespread economic turmoil. While the Bank of Thailand can adjust policies and use market interventions, the currency’s rise is largely driven by market forces and external factors, making sustained control difficult.

Business leaders, including the Thai Chamber of Commerce, have warned that a strong baht can harm competitiveness, as companies generally prefer a weaker currency to support exports. Meanwhile, consumer prices have been falling since April, leading officials to consider interest-rate cuts to support domestic growth.

The baht’s strength is also influenced by gold, which has surged about 45% this year. Thailand is a major consumer of gold, which is often used in religious ceremonies and as gifts, and this demand supports the currency. Despite this, key sectors like tourism and manufacturing are facing difficulties, and new US tariffs may further challenge exports. Deputy Governor Piti Disyatat noted that “fundamentals suggest a slightly weaker currency than the current level.”

Political uncertainty adds another layer of complexity. Prime Minister Anutin Charnvirakul, recently sworn in after Thailand’s inconclusive 2023 elections, is under pressure to boost the economy. However, measures to stimulate growth could inadvertently strengthen the baht further.

Options to control the baht are limited. Interventions and dollar purchases can help temporarily, but large-scale actions risk international criticism, and capital controls would only provide a short-term solution. Unlike past crises where the US supported IMF-led bailouts, Thailand now faces its currency rally largely without external aid, adding pressure on policymakers.

Thailand’s leaders must carefully navigate this situation, balancing economic growth, currency stability, and political expectations. While challenging, managing the baht’s strength effectively could also present an opportunity to strengthen the country’s economic resilience.

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