Trading The Thai Baht: What To Know

Thailand is known for its rich culture, pristine beaches and tasty cuisine. The Kingdom of Thailand, historically known as Siam, is one of the top tourist destinations in the world, drawing the attention of tourists from America, Europe and the rest of Asia.

What many of you may not know is that Thailand is the second largest economy in Southeast Asia after Indonesia. As the country’s economy attracts foreign investors, Thai baht, the local currency, has gained a share in the forex trading market.

In this article, we will share some valuable insights regarding trading the Thai baht (THB) and how the Thailand economy has performed in the last few months.

Thailand Economy: Performance And Outlook

With a population of almost 70 million people, Thailand’s economy is one of the major economies in the region and the ninth largest in Asia. The Thai economy is based on exports that make up 58% of the country’s gross domestic product (GDP).

A report published by the International Monetary Fund (IMF) showed that its analysts believe in Thailand’s economic potential by upgrading their outlook for 2024. The IMF survey suggested that Thailand's economy is projected to grow 2.7% this year and 3.6% next year, amid a highly uncertain global environment. The Fund’s economists said that improvements in external demand and continued solid growth in private consumption have helped the Thai economy and expect the impact to be reflected in the GDP growth rate next year.

A World Bank report published in October didn’t sound optimistic about the future of the Thai economy. World Bank’s analysts cut their outlook for 2023 and 2024, citing easing global demand that could hurt exports. The report noted that Thailand’s economy is likely to grow by 3.4% this year and 3.5% in 2024, with both figures being lower than the ones the World Bank had announced in April. The accompanying report suggested that “the East Asia and Pacific region will be the fastest growing and the most dynamic of the world's major regions in 2023, even though growth is anticipated to moderate in line with the slower patch of China's.”

GDP growth figures were not the only issue addressed by the World Bank. The World Bank’s chief economist for East Asia and the Pacific, Aaditya Mattoo, told reporters that “the country and the region grew by openness to trade, investment and manufacturing, but in services, it remains much more reluctant to reform. We need reform to harness technology and make sure the benefits go to everybody.”

Thai Baht (THB) And The Bank Of Thailand

The  Bank of Thailand (BOT) is the central bank of the country. Thailand’s central bank started its operations in December 1942. According to the BOT’s website, its main role is to “to ensure orderly domestic macroeconomic and financial conditions to support stable and sustainable economic growth of the Thai economy.” The BOT formulates and implements monetary policy, issues the Thai baht, oversees banking institutions and aims to preserve financial stability.

The Thai baht (THB) is the official currency of the country, issued by the BOT. The baht’s story started at the beginning of the 1900s, and it has been a turbulent one. Thailand’s currency has been pegged twice (1956-1973 and 1984-1997) to the US dollar. In July 1997, the Thai baht was unpegged, forcing the currency’s value to collapse as the Asian financial crisis started having an impact on the regional economies. People who had taken loans in US dollars faced significant problems as their revenues were in bahts, making them unable to service their debts while many businesses went bankrupt.

Many things have changed, though, since then as the Thai economy is one of the strongest in the region with a set goal to reach the developed economy status by 2037. According to a survey by the Bank For International Settlements (BIS), the Thai baht is the 22nd most traded currency in the world.

Baht Loses Ground, BOT Likely To Stop Rate Hikes

On September 27th, the BOT surprised investors and economists by hiking its interest rates by 25 basis points. The last hike was the eighth in a row bringing rates to a 10-year high.

The assistant central bank governor, Piti Disyatat, told Reuters that the weakening baht was not the reason behind the rate hike, stressing that the currency was moving in line with regional peers that are under pressure from the strong US dollar. It should be noted that the Thai baht has lost 5% of its value against its US counterpart this year.

Market analysts working for the BM Intelligence Group (BMI) suggested that the recent interest rate hike marks the end of the current tightening cycle. Oversea-Chinese Banking Corporation (OCBC) economists seem to agree, noting that the surprise hike could be just a pre-emptive strike against potential inflationary pressures in the future, adding that they don’t forecast any new monetary policy tightening move by the BOT.

Another factor that could play a role in the BOT’s monetary policy decisions would be low inflation figures in the last month. A survey showed that headline inflation came in at –0.31% in October, on a year-to-year basis. This has been the first negative rate recorded since August 2021, surprising analysts who expected inflation to come in at 0%. Commenting on the numbers, government representatives admitted that there were bad signs warranting the delivery of an economic stimulus package.

Thai Stimulus Package Causes A Stir

The stimulus package has been a topic of conversation and debate in Thailand as the government unveiled a $14 billion cash handout to jumpstart its economy. Some economists and former central bankers have warned that the outlay may trigger more inflation and widen the fiscal deficit. Almost 50 million people would receive $280 in a digital wallet in May 2024 if the plan would go ahead.

As Prime Minister Srettha Thavisin announced his intentions, retailers' stocks rose while bonds and currencies slid as market analysts expressed their fears regarding the impact of the package on the economy.

Risk Management When Trading The Thai Baht

The US dollar against the Thai Baht (USD/THB) is probably the most popular currency pair, including the Thai currency, that beginner traders might encounter as they start their trading journey. While some of them may feel the need to add it to their trading portfolio, it would be best to take some time to boost their trading knowledge before submitting to the impulse.

Beginner traders should focus on learning how to trade and then improve their skills. Brokers offer a wide array of educational materials, including webinars, articles, how-to guides, etc., that are valuable sources of information and insights. Knowing the fundamentals can help beginner traders build their strategies and enter the world of trading while reducing their risks.

Talking about risks, experienced traders stress how important it is to use risk management tools when executing strategies. Beginner traders should practice using such tools such as the stop-loss order to mitigate risks that could jeopardise their budgets and financial goals.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.