The baht's troubling rise

The Thai baht, since the beginning this year, has appreciated nearly 8% against the US dollar. Such an escalation makes baht the strongest among Asian currencies. While a rapid currency appreciation should have been taken a signal of economic strength, the underlying realities paints a far more complex and worrying situation.

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Usually, a currency strengthens when domestic interest rates are high; when an economy grows robustly or even when inflation is appropriate and stable. Economic conditions in Thailand, however, have gone in the opposite direction. Interest rates remain too low and so do economic growth and inflation. There is no rational explanation why the Thai currency has gone in the opposite direction.

Attention has therefore turned to the balance of payments. A persistent current account surplus appears to be a key driver.

Economist Supavudh Saicheua, chairman of the National Economic and Social Development Council (NESDC), raised concerns over inflows averaging US$3 billion per quarter over the past two to three years, reflected in the so-called "errors and omissions" line of the balance of payments.