Thai baht rally may fade on dovish central bank

Bangkok: Thailand's central bank is poised to maintain a dovish monetary policy as the baht rallies, potentially short-lived according to analysts. The Thai currency has gained 0.9% this month, ranking second among Southeast Asian peers. BNP Paribas forecasts the baht could weaken 4% to 34.4 per dollar by year-end due to higher oil prices impacting Thailand's trade balance.

Thailand's current account deficit widened to $17.7 billion last quarter from $1.4 billion in the previous period due to increased energy imports. The Bank of Thailand is expected to keep interest rates steady at 1% at its August 26 meeting to support growth, which could weigh on the baht as US yields remain high. Higher energy costs are straining the economy, with jet fuel prices and Middle East instability affecting tourism, a key growth driver.

Fiscal concerns are rising as plans to raise $12 billion in new borrowings for stimulus and energy programs raise doubts about Thailand's ability to keep public debt below 70% of GDP. The currency's vulnerability is heightened by widening interest rate differentials with the US, potentially prompting investors to seek higher yields elsewhere.