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Thai baht outperforms in emerging Asia amid favourable domestic, foreign factors

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The prospect of another interest-rate increase by the Thai central bank in the second half of the year will help boost the currency, especially in light of a likely pause in tightening by the Federal Reserve. Krung Thai Bank predicts the baht will strengthen to 31 by year-end.

Bangkok

THERE'S no stopping Thailand's baht.

Last year's best performer in emerging Asia has rallied another 4.2 per cent versus the dollar this year, the biggest gain in the region, and what's driving its advance include a slew of local and foreign factors.

"The baht may continue to outperform," said Jitipol Puksamatanan, chief strategist at Krung Thai Bank, which was the second-most accurate forecaster for the currency last quarter in Bloomberg rankings. Strong foreign direct investment, a current-account surplus amid lower oil prices, and subdued inflation are also supporting the baht, he said.

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The prospect of another interest-rate increase by the Thai central bank in the second half of the year will help boost the currency, especially in light of a likely pause in tightening by the Federal Reserve, Mr Jitipol said. The baht will strengthen to 31 by year-end, he predicted, compared with 31.221 where it was trading as at 2.53 pm in Bangkok.

The Bank of Thailand also doesn't seem too concerned about the baht's appreciation. The currency's strength is a good opportunity for Thai firms to import machinery to bolster productivity, central bank assistant governor Chantavarn Sucharitakul said last week.

If history is any guide, the baht's outlook in February continues to be optimistic. The currency has gained that month in eight of the last nine years.

But for some, political risks, including the nation's first general election since a coup in 2014 slated for March and a slowdown in Chinese growth remain a risk.

When the yuan goes down, "the baht will get dragged lower, too", said Michael Every, Hong Kong-based head of Asia financial markets research at Rabobank, which was the most accurate forecaster for the baht. "Plus, any new government will spend more money and hence, reduce the current-account surplus."

Rabobank sees the currency at 33.7 per dollar by the end of the year, based on his bearish view on the Chinese yuan, he said. BLOOMBERG