Thai Baht Strengthens

The Thai Baht continues to strengthen against major currencies, following a decision by the Bank of Thailand to raise the key interest rate to 1.75% on August 25th. Thailand’s inflation rate accelerated in July, with consumer prices rising 3.4 percent from a year earlier.

The central banks primary role is to monitor price inflation and adjust the interest rate to maintain the inflation rate below 3% on an annual basis.

Capital Flows

As a currency’s interest rate increase, it attracts foreign capital causing the currency to strengthen.

Exchange Rates

The Thai Baht climbed to the strongest level in more than two years against major currencies. (click on chart to enlarge)

฿ 39.71 against the Euro

฿ 48.64 against the Pound ฿ 31.27 against the US Dollar

For the latest exchange rates visit the website.

The central bank is expected to raise interest rates again by another 0.25% to 2.0% later this year. While exchange rates fluctuate from day to day, it is expected that Thai Baht will continue to strengthen against the major currencies.

Robust Economy

Thailand’s economy has been robust this year growing 9.1 % in the second quarter as exports rose. The central bank expects the economy to grow by more than 7 % this year. This is the strongest growth rate since 1995.

Thailand is Southeast Asia’s largest economy after Indonesia.

Surging Exports

Thailand’s exports increased significantly in June, up 46 % over the previous year, the most in more than 18 years, and by 20.6 % in July.

Thailand is a manufacturing base for major international companies like Toyota Motor Company.

Thai Government urges Caution

The government’s economic advisory body earlier this week urged the central bank to “be careful to make sure monetary policy won’t affect rising investment”. As higher interest-rates attract capital inflows, causing the Baht to strengthen, export competitiveness may be impacted.

The central bank has said it will be cautious in its monetary policy, and is monitoring world markets. Growth in the world’s major economies is expected to slow in the second half of 2010, which will affect the global recovery.

Central Bank Governor

The current central bank governor, Tarisa Watanagase is preparing to step down after four years as the Bank of thailand’s first female governor.

She considers one of her greatest achievements was securing independence for Thailand’s central bank.

After a near decade-long battle, she helped push through laws giving the institution freedom from political interference, following the 2006 coup that overthrew former prime minister Thaksin Shinawatra.

Social and Political Concerns

Tarisa has expressed disappointment that the country’s economic progress has not been matched in the political system. Thailand’s politics has been haunted by corruption, scandal and military interference.

Regarding the recent red-shirt protests, Tarisa says that further dialogue, more social measures, and steps to address inequality, were critical elements for Thailand’s social development and political stability.