The possibility of political unrest ahead of Thailand’s election next month is one of the key risks facing the economy, but so far at least, the uncertainty is having little impact on the currency. The Thai baht is up 5% since the start of the year, making it the best-performing Asian currency over this period. The strong performance of the baht is down to two main factors. First, a shift in interest rate expectations in the US, which has led to an improvement in risk appetite. Second, the recent strong performance of the Thai economy, which has raised expectations that monetary policy will be tightened again this year. The strong baht is likely to add to the headwinds facing the export sector, and is one of the reasons why we expect exports to contract this year. There are signs that policymakers are becoming concerned, with Bank of Thailand governor, Veerathai Santiprabhob, recently noting that the “fast appreciation has given us cause to worry”. The upward pressure any further rate hikes would put on the baht is a key reason why we think rate hikes in 2019 in Thailand are unlikely, and we expect rates to remain on hold throughout 2019. Most other analysts are expecting at least one further rate hike this year.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services