The Thai currency was hovering around the psychological barrier of 40 baht to the dollar on Monday, trading at 40.76 at the close of local trading, after Thaksin predicted it could break into the 30s. In a speech to his Thai Rak Thai party on Sunday, Thaksin expressed confidence in the future of the currency which was badly battered during the 1997 Asian financial crisis and has spent the last five years struggling to recover.
"There is a likelihood the baht may go into the thirties," government spokesman Yongyuth Tiyapairat said on Monday, confirming Thaksin's reported comments. "The Thai baht should continue to gain against the dollar in line with the euro, which also appreciated as the demand for dollars has decreased," he said, adding that the rate could hit 37-39 to the dollar.
Amid the furore, Thaksin on Monday downplayed his forecast for the currency. "My prediction was based purely on technical factors and are in line with other regional currencies," he told reporters. Financial analysts said they were cautiously upbeat about the baht's outlook. "There is no reason to think that (a continued gain) is not going to be the case because the domestic economy is strengthening and the improved economic environment is a long-term trend," said Andrew Stotz of SG Securities.
But he said the baht's surge could threaten to deflate exports, which have been the driver of this year's economic recovery. "You can see export stocks getting hit today and they will continue to get hit if the baht improves." Yongyuth also said the baht's improved performance could have positive and negative effects on the economy.