October 4, 2023
Lack of clarity over the new digital-wallet scheme is weakening the value of the baht and could eventually become a hidden cost for the Thai government.
Foreign investors have been selling Thai bonds and stocks since September, ahead of the anticipated distribution of 560 billion baht (US$15 billion) via 10,000-baht digital payments to every Thai over the age of 16.
The baht’s depreciation over the past month is peculiar, as it is not solely due to the strong US dollar. This is evident in the fact that the baht has weakened further than the currencies of Japan, South Korea, China, Taiwan, Hong Kong, Singapore, Malaysia, Vietnam and the Philippines. The baht plummeted past 37 per dollar on Tuesday morning, its lowest level in 11 months.
The reason foreign investors have been selling Thai bonds at a faster rate than those of other countries in the region is twofold. First is the higher interest rate on the US dollar; second is that the market anticipates that Thai bond prices will fall in the future due to higher yields resulting from the government’s 560-billion-baht digital handout.
The expectation of falling bond prices has triggered a sell-off that has weakened the baht as investors take their money back home.
And as the baht weakens, Thailand will need to spend more on importing goods, especially oil, a major cost for all industries in the country.
Importers will also pay more for goods, extra costs that will be passed on to Thailand’s consumers. For example, iPhones here are becoming more expensive.
Conversely, exporters who deal in dollars will benefit from the current situation.
National banks are now likely to consider raising interest rates or implementing measures to maintain the stability of the baht.
At the same time, large-scale projects such as the 560-billion-baht digital wallet scheme are putting more pressure on the baht’s value. This means that the Thai government will have to borrow at higher interest rates to distribute the money.
Meanwhile, with little clarity on details of the digital distribution plan, market concerns remain high, leading to sell-offs during this period of uncertainty.