Kasikornbank (KBank) has revised its year-end baht outlook to 33.50 against the US dollar from 34.50 earlier, citing continued offshore capital flows into Thailand.
A wider gap between Thailand’s real interest rate and low inflation is the key factor attracting foreign capital, particularly in short-dated Thai bonds, said Kobsit Silpachai, head of the bank’s capital market research department.
Foreign holdings of Thai bonds total 700 billion baht, up from 630 billion at the beginning of the year. The influx of offshore funds is firming the baht against the US dollar.
The baht is the top-performing currency in Asia with a 7%-plus gain this year, prompting the Bank of Thailand on Monday to require commercial banks to report additional information in the event of unusually high volume of transfers between non-resident baht accounts, which could involve baht speculation.
“The central bank’s move led to the baht weakening marginally by seven satang on Monday,” Mr Kobsit said. “The central bank should be more aggressive on foreign exchange management, otherwise the baht will reach 33.20-33.50.”
But adjusting policy rates and managing foreign exchange will be insufficient to lower the baht, he said, adding that fiscal policy is needed to raise domestic consumption and fuel inflation to ease the baht’s gain.
Even though private consumption grew by 3% in the second quarter, 22% of domestic consumption came from foreign tourists, according to data from the National Economic and Social Development Board.
Mr Kobsit sees the US Federal Reserve delaying its third policy rate hike that was expected this year and paying more attention to quantitative tightening measures.
Thailand’s current account surplus has continued to rise, supported by growth in exports and foreign tourism amid sluggish investment and consumption, he said, adding that the high current account surplus has further lifted the baht.
KBank, the country’s fourth-largest lender by assets, has announced an upgrade of its China branch to become a local bank after winning approval from Chinese authorities in June. The bank is scheduled to start operations under the local licence in October.
The bank has set up a wholly owned subsidiary, Kasikornbank China Co Ltd, with registered capital of 3 billion yuan (15 billion baht) to handle banking business in China under a foreign branch licence with three branches in Shenzhen, Chengdu and Shanghai, plus a Longgang sub-branch.
KBANK shares closed yesterday on the SET at 194.50 baht, up 3.50 baht, in trade worth 1.13 billion baht.