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
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
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
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)