Singapore

THAILAND'S central bank knocked the baht from its perch, but the weakness could be short-lived, according to the currency's top forecasters.

The Bank of Thailand took steps in July to curb short-term inflows after the currency surged to a six-year high. Those measures are hurting the baht, which is headed for a loss in July and is the worst-performing emerging-market currency in Asia after South Korea's won.

While "the market will continue to worry about further measures against the baht's strength", the currency will probably recover over the medium term, said Qi Gao, a Singapore-based currency strategist at Scotiabank, the most accurate forecaster for the currency in the second quarter based on Bloomberg rankings. Thailand's solid economic fundamentals will help lure fund inflows amid a global easing cycle and negative interest rates, he said.

The baht could drop more than 2 per cent to 31.5 against the US dollar in the next couple of weeks before recovering to about 31 by the end of the year, according to Mr Gao. The currency traded at 30.823 per US dollar as at 3.56pm in Bangkok on Tuesday.

Moody's Investors Service and Fitch Ratings boosted Thailand's credit-ratings outlook to positive from stable this month, complicating the central bank's efforts to restrain the currency.

The baht is the top performer in emerging markets in the past 12 months, with a gain of about 8 per cent. That strength is hurting exports and tourist arrivals, two pillars of the US$505 billion economy. Thailand has attracted US$3 billion of overseas money this year into its stocks and bonds, compared with an outflow of about US$60 million in 2018.

The nation boasts a current account surplus and substantial foreign reserves that rose to a record US$218 billion in July.

While the central bank could unleash more measures to curb the currency's gains, it will likely stop short of imposing capital controls after learning from a similar experience in 2006, said Jitipol Puksamatanan, chief strategist at Krung Thai Bank, the third most accurate forecaster for the currency in the second quarter.

The baht should appreciate towards the year-end as rate cuts by the Federal Reserve will weaken the dollar, the Bangkok-based analyst said.

Declines in the baht are an opportunity to buy the currency, said Ray Choy, regional head of treasury and markets research in Kuala Lumpur at CIMB Bank, the second most accurate forecaster.

"There has been much interest in the Thai baht given its fundamentals," he said. "With the impending US rate cut and following the baht's correction, the baht is expected to appreciate. Hence, we see an opportunity in dollar/baht if it moves up." BLOOMBERG