HEADLINES [click on headline to view story]:

Strong baht puts pressure on exports

Thai companies report surge in corporate earnings

Central bank says it will continue to oversee actual interest rates

Drop in agricultural prices pushes down inflation

Strong baht puts pressure on exports

The strength of the baht, which has reached a six-year high against the dollar, spells bad news for Thailand’s export competitiveness, a leading research institute has warned.

A report just out from the Thai Farmers Research Center (TRFC) said that mid-March’s six-month high of 42.47 baht to the greenback, down from 43.5-44 baht at the end of last year, was mainly due to a decline in the US dollar rather than domestic factors.

But the baht’s newfound strength raised immediate questions about its impact on the Thai economy. The TFRC said that throughout last year the baht rose by 1.1 percent compared to the dollar. This put Thailand’s exports at a disadvantage compared to countries such as China and Hong Kong with dollar-pegged currencies. This resulted in a decline in Thai exports to China and Hong Kong in January of 0.8 percent and 16.8 percent respectively.

While the TFRC admitted that the stronger baht would help cushion the impact of rising oil prices, inflation nonetheless remained high, standing at 2.2 percent in January before creeping down to 1.9 percent in February.

Predicting that the baht would continue to grow in strength throughout the year, the TFRC said that the baht was being affected by the weakness of the dollar, which was unlikely to grow in strength unless the standoff with Iraq came to a speedy conclusion.

The TFRC predicted that by the year-end the baht was likely to stabilize at 43 baht to the dollar, in part due to the privatization of 3-4 state enterprises and the early repayment of USD4.8 billion owed to the International Monetary Fund.

Thai companies report surge in corporate earnings

According to Thanawat Patchimkul, head of research at KGI Securities, Thai corporate earnings jumped around 70 percent last year on the back of increased domestic consumer spending, and he feels fund managers will see more growth in 2003, especially with companies that export chemicals and electronics.

The most exciting figures came from property and building firms which cashed in on a housing boom sparked by low interest rates and government fiscal stimulus measures. Medium-sized companies also took the opportunity to refinance their debt at cheaper rates.

Thanawat Patchimkul said, “Most of the companies are finally turning around are showing healthy profits, especially those in the property sector.” He added that considering the sluggishness of the global economy companies that posted growth in the electronics sector had implemented good turnaround strategies and that Thailand is starting to benefit from outsourcing.

Electronics firms, including Hana Microelectronics and Thai Airways topped the list as surprise achievers.

Thai Airways carried many more passengers in spite of the global airline industry downturn and the 9/11 terrorist attacks. Mobile phone operator Advanced Info Service doubled its subscriber base while slashing its operating costs.

The biggest 100 firms, accounting for 80 percent of total market capitalization, reported a 70 percent rise in earnings in 2002, according to Capital Nomura Securities. The brokerage forecasts a 24 percent earning growth for this year.

Central bank says it will continue to oversee actual interest rates

The Bank of Thailand (BOT) confirms that it will continue to closely oversee the actual interest rate to make certain it does not slide into negative territory. M.R. Pridiyathorn Devakula said the decision by commercials banks to further cut interest rates sparked public concern that the actual interest rate would move into the red. The BOT will supervise the 3-month and 6-month savings rates to minimize the effect on depositors.

The bank feels the recent decision by many commercial banks to reduce the 24-month saving rate by 0.75% to 2% will not cause serious negative impact because it was a strategy aimed to manage their liquidity.

However banking analysts predict that deposit and lending rates could likely drop further this year because excess liquidity is still in the system.

As of the end of the fourth quarter last year, the weighted 3-month saving rate was 1.88% a year compared with 2.25% in the same period the year before. The saving rate offered by local commercial banks was 1.93% and that offered by foreign banks was 0.99%.

However, given that the inflation rate in that quarter stood at 1.4% and deposits were subject to 15% tax, the actual deposit rate was zero. It is likely to stay in negative territory this year because the inflation rate is expected to rise as a result of the higher oil prices and the economic recovery.

Lending rates have also dropped, but at a slower pace than deposit rates in the quarter. The lending rate offered by commercial banks stood at 6.69% compared with 7.125% in the same period the previous year. It caused the interest spread to widen to 4.81%. (TNA)

Drop in agricultural prices pushes down inflation

The government recently unveiled figures showing that inflation in February was down 0.2 on January figures, but admitted that this drop was largely due to a fall in the price of agricultural goods.

And while the consumer price index for February showed inflation down 0.2 percent from January, it remained 1.9 percent higher than February 2002, with inflation for the first two months of 2003 a significant 2 percent higher than the same period the previous year.

The details of the consumer price index show the price of food and beverage items to have fallen by 0.6 percent, while that of non-food items rose 0.5 percent. The price of pork, chicken and several sorts of vegetables fell due to increased production, although increases were recorded in the price of ‘hom mali’ rice, dairy produce, and certain fish and sea food. (TNA)