Thailand may raise Key interest rate a 2nd straight month and report economic growth of more than 7% as rising exports drive a recovery after political turmoil prompted a crackdown on protesters in Q-2.
Thailand’s SET stock index has risen 17% and the Baht has climbed more than 2% since May 19, when troops broke up anti-government protests.

Exports of cars and electronics have jumped and tourists are returning to Phuket’s beaches, with Finance Minister Korn Chatikavanij predicting this month the economy may expand 8% this year.

“The Q-2 data reflects the economy’s resilience to the political turmoil and the strength of exports,” said Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok. “This supports our view that the central bank will continue to raise its key rate.”

The Thai central bank expects Y 2010 growth of as much as 7.5%, which would be the strongest pace since Y 1995, before the collapse of the Baht in Y 1997 helped trigger the Asian financial crisis, in which Thailand, Indonesia and South Korea were forced to seek International Monetary Fund funds.

“Everybody thought Thailand would go down with the riots,” said Mark Mobius, who oversees about US$34B as Singapore-based executive chairman of Templeton Asset Management Ltd.’s emerging markets group. “We have seen the improvement that is taking place” and Templeton has increased investments in the country in the last 12 months, he said yesterday.

The country’s exports jumped 46% in June from a year earlier, the most in more than 18 yrs, before cooling to a 20.6% pace last month. The slowdown in July prompted Commerce Minister Porntiva Nakasai to say the Thai Baht’s strength is a “risk” to the country’s overseas sales, and the central bank should “take care” of the currency.

The weaker exports data do complicate the central bank’s policy decision “because higher rates would increase upward pressure on the Baht,” said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. Still, the central bank is capable of “managing this pressure through intervention” and is unlikely to change its “hawkish bias” based on one month of data, he said.

The central bank has said that overseas sales may ease in the second half amid signs of cooling demand in the global economy, even as the government raised its Y 2010 export growth target to at least 20%. Thailand is a manufacturing base for companies including Toyota City, Japan-based Toyota Motor Corp.

Overseas demand, which has lifted export-dependent Asian economies including Singapore and China, may falter as governments in Europe embark on austerity programs to cut deficits and households in some of the world’s largest economies hold back spending. Singapore’s exports rose at a less-than- expected pace in July as shipments of pharmaceuticals and electronics cooled.

“Thailand’s economy has a large dependence on the export sector, which means the stronger baht will have a sizable impact,” said Hideki Hayashi, an economist at Mizuho Securities Co. in Tokyo. “When external demand is weaker with the slowdown in the US and China, the rising Baht will cut Thailand’s price competitiveness in the export market.”

The Baht advanced to as high as 31.48 a USD Friday, its strongest level since April 2008, and is headed for its best week in more than 5 months after Bank of Thailand Governor Tarisa Watanagase said this week that the central bank is “not concerned” about the currency’s gains, provided it moves in line with those in the region.

“The Baht’s gains affect the exporters of Thailand, but we cannot halt the inflows because the U.S. is not good and Europe is not good, so the inflows are coming to Asia,” said Kornvica Pimukmanaskit, an analyst at Kasikornbank Pcl. in Bangkok. “They also have learned a lesson. They fought against the market until they couldn’t fight anymore in the 1990′s. Like Malaysia did this week, the Baht will become more flexible.”

Slowing growth in the 2-H of this year may prompt the central bank to be cautious in its rate normalization, said Standard Chartered’s Usara. “Signs of slowing global demand will soon translate to weakening shipments,” Usara said. “Domestic demand is recovering, but may not be strong enough to offset that.”

Tourist arrivals have recovered after dropping 13% from a year earlier in May, when riots erupted across Bangkok. Last month, the number of foreign tourists rose 14% to 1.25M, according to the Office of Tourism Development.

Thai Airways International Pcl said last week the return of tourists after the protests has revived the risk of aircraft shortages. Thai consumer confidence rose for the 3rd month running in July.—Paul A. Ebeling, Jnr. www.livetradingnews.com

Posted by Shayne Heffernan on Aug 23rd, 2010and filed underAsia, Equities, Latest News, Markets, News & Events.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site