The Pound to Baht (GBP/THB) exchange rate is trading near 44.30, with the pair holding above the 44 level after recovering from lows seen earlier this year.
MUFG expects the Thai Baht to remain under pressure and forecasts, against the US dollar, USD/THB to trade at 33.80 over both the three-month and 12-month horizons.
The bank notes that lower oil prices should reduce Thailand’s inflation pressure, but argues this is unlikely to remove downside risks for the Baht.
According to MUFG, domestic demand remains weak and uneven, while core inflation is still subdued. This supports the case for the Bank of Thailand to keep monetary policy accommodative, with rates likely to remain at 1.00% for the rest of the year.
The bank warns that this low-yield backdrop limits support for the Baht, especially relative to the US Dollar.
MUFG also highlights renewed foreign portfolio outflows, with Thailand recording $510mn of net outflows in June after inflows in May. This has reinforced depreciation pressure and helped explain the Baht’s recent underperformance.
Thailand’s external position has also weakened as tourism enters the off-peak season and export momentum to the US and China begins to moderate.
While MUFG does not expect a severe deterioration, it believes limited fiscal space and constrained monetary policy leave Thailand with few tools to support growth or defend the currency.
The bank expects the Thai Baht to remain vulnerable, with any sustained recovery likely requiring lower US yields and stronger capital inflows.
