Greater fund flows could return to Thailand's financial market given its economic recovery, but external factors will determine the trend, says the Bank of Thailand.
"External factors are the main variable affecting fund flows this year," said central bank governor Veerathai Santiprabhob. For instance, if the US Federal Reserve continues its rate normalisation then capital outflows are likely to continue in Thailand.
Reduced risk appetite by foreign investors because of concerns about emerging market economies have been affected by low commodity prices, leading to capital outflows, said Mr Veerathai. He said concerns about bad loans, especially in Deutsche Bank, also caused capital to flee to safe-haven assets.
Deutsche Bank chalked up a record loss of €6.8 billion (270 billion baht) last year, while its shares tumbled by nearly 40% since the start of this year amid concerns over the bank's payment ability for its riskiest debts.
Despite Fed chair Janet Yellen's remarks expressing worries over tightening US financial conditions and the global economic slowdown, her tone does not seem to suggest a reverse of the Fed's rate normalisation because the US labour market is recovering, said Mr Veerathai. But further rate normalisation by the Fed might take longer than expected, based on market reaction, he said.
The baht's value yesterday appreciated to 35.25 to the dollar after opening at 35.3.
The local currency's value should be examined based on a basket of key currencies rather than singularly, said Mr Veerathai, citing how the Japanese yen strengthened recently despite the Bank of Japan's move to adopt a negative interest rate for commercial banks' deposits parked at the central bank.
The baht's volatility this year grew to 4.38% from 3.2%, while the Malaysian ringgit rose to 13% from 9% and the Singapore dollar rose to 8.7% from 5.1% in volatility, part of a trend for the region, said Chantavarn Sucharitakul, an assistant governor overseeing financial markets operations.
The baht has gained just over 1% this year, on par with the Indonesian rupiah and the Singapore dollar, while the ringgit was 3% stronger, she said.
Thailand's economy remains on the recovery path this year, but "uneven growth" is expected as certain export manufacturers have been experiencing structural problems associated with a shift in demand for technological products, a hike in the minimum wage and a shortage in skilled labour, said Mr Veerathai. Low commodity prices and the protracted drought also dampened economic momentum among farm households, he said.
But multiplier effects derived from the government's infrastructure projects should stimulate the economy and enhance development of rural areas and public utilities, said Mr Veerathai.