Southeast Asian nations have been grappling with a significant devaluation of their currencies, nearing their year-to-date lows, largely attributed to the robust performance of the US dollar. Among the currencies most affected, the Malaysian ringgit and Thai baht witnessed the sharpest declines, sparking apprehensions within governments and business circles across Southeast Asia about the potential repercussions of the plummeting currencies on their national economies.
The depreciation of these currencies has heightened the cost of importing goods, exerting pressure on regional exporters attempting to leverage the depreciation to their advantage. These exporters face considerable challenges due to uncertainties in major markets, particularly China, which have slowed down the expected export gains.
While currency depreciation generally bodes well for exporters and tourism sectors, the ongoing devaluation comes with its share of risks. One significant concern is the potential outflow of capital from the region, prompted by the depreciating currencies. Additionally, the recent surge in oil prices has raised fears of inflationary pressures.
Notably, the Malaysian ringgit and Thai baht have experienced the most significant declines in Southeast Asia this year, depreciating by 6.9% and 4.4%, respectively, against the US dollar. The Indonesian rupiah and Singapore dollar have not been immune to these pressures, declining by 2.1% and 0.7%, respectively.
This widespread depreciation can be attributed to the vigorous economic and employment growth observed in the United States, which has bolstered government bond yields and the value of the US dollar. The resilience of the US economy has led some investors to anticipate that the Federal Reserve (Fed) will maintain higher interest rates for a more extended period, a move aimed at curbing inflation.
The attraction of higher interest rates in the United States has lured investors seeking improved returns, resulting in capital outflows from Southeast Asia and a subsequent decline in the region’s currency values.
Analysts from the Kasikorn Research Center highlighted another element contributing to the baht’s depreciation. It is the lack of confidence in the Thai economy, coupled with concerns regarding the nation’s fiscal discipline, notably in the context of the government’s plan to introduce digital currency to the public. This initiative is expected to accumulate additional public debt for Thailand, potentially amounting to 560 billion baht (15 billion US dollars).
The Thai baht’s recent weakness has been accompanied by volatility, presenting challenges for exporters who find it increasingly challenging to capitalize on the baht’s depreciation. This exchange rate fluctuation has instilled fear among exporters, deterring them from engaging in bidding and other activities that might expose them to currency risk.
Amidst these concerns, the Joint Committee of the Private Sector of Three Institutions (CPF) has recommended that the Thai government actively work to stabilize the baht’s value within an acceptable framework. Such actions, they believe, will play a crucial role in supporting the export sector, ensuring greater stability and resilience in the face of currency depreciation.