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05BANGKOK4780 CHINA REVALUES; THAI BUSINESS SHRUGS

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“37309”,”7/26/2005 10:04″,”05BANGKOK4780″,

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

“04BANGKOK8292”,

“This record is a partial extract of the original cable.

The full text of the original cable is not available.

 

“,”UNCLAS BANGKOK 004780

 

SIPDIS

 

SENSITIVE

 

TREASURY FOR OASIA

COMMERCE FOR 4430/EAP/MAC/OKSA

 

E.O. 12958: N/A

TAGS: EFIN, ETRD, ECON, CH, TH

SUBJECT: CHINA REVALUES; THAI BUSINESS SHRUGS

 

REF: 04 BANGKOK 8292

 

1.(U) In response to the July 21 revaluation of the Chinese

Yuan, and following a July 22 Thai bank holiday, the Thai

Baht appreciated against the US$ by about 1.6 percent, from

an average interday rate of 42.09/US$ on July 20 to

41.38/US$ on July 26. Similarly the Stock Exchange of

Thailand (SET) index closed at 650.04 on July 20 and gained

9.6 points (1.5 percent) by the close on July 25.

 

2. (SBU) On July 26 both the Baht and SET weakened in the

wake of profit taking and more careful consideration of the

near-term effects of the Chinese move. We have spoken with

more than forty companies, bankers and academics and while

most acknowledge that the revaluation is a step in the right

direction, they believe it is too soon to tell how much the

Yuan will actually be allowed to appreciate and over what

time frame. One Thai banker argued that the Chinese move is

simply \”an effort to get the U.S. off their backs\” and that

\”nothing practical will change for some time.\” Another said

that he expects no further Yuan appreciation for \”at least

six months\” while the Chinese consider the effects of the

initial action. All believe that a 2.1 percent appreciation,

netting to about 1 percent when considering the appreciation

of regional currencies against the US$, is far too small to

have any impact on Thai trade. None of the companies with

whom we spoke plan any changes or expect any particular

impact on their business. The only strongly positive reaction

was from a Thai Airways official who voiced hope that as the

Yuan continues to strengthen, more Chinese tourists will

visit Thailand and company operations in China will grow more

profitable due to positive currency translation.

 

3. (SBU) Both private and Bank of Thailand analysts agree

that the timing and method of the revaluation was designed to

minimize the effect of the currency move. They point to the

action taking place in mid-summer, when currency trading is

slower, at a period when the US$ was appreciating and the

outlook was for continued Federal Reserve interest rate

increases and positive US economic growth; all factors

supporting continued strength in the greenback. Relative to

the Baht, most local currency traders argue that the

revaluation broke the downward momentum of the Baht but that,

unless there is further Yuan appreciation in the next month

or two, the Baht\’s movements will again be determined largely

by Thai macroeconomic conditions. In any case, none felt that

the Baht would soon break the Bt40/US$ level last seen in May.

 

4. (SBU) On the other hand, RTG officials are using the

revaluation of the Chinese Yuan to talk up prospects for the

Thai economy in a bid to counteract increasing negative

business and consumer sentiment over the near term economic

outlook. Following a July 22 meeting of the Ministers of

Finance and Commerce and the Governor of the Bank of

Thailand, Finance Minister Somkid told the press \”the Baht

has strengthened less than the Yuan, so it will benefit Thai

exports.\” Central Bank Governor Pridyathorn said the

revaluation will make it \”easier to implement our monetary

policy since the Chinese chose a managed float system.\”

Commerce Minister Thanong noted that the one percent

appreciation of the Baht against the US$ on July 22 was less

than the appreciation of other regional currencies that day

and was therefore a positive indicator for Thai exporters.

 

5. (SBU) Comment: The general attitude in Thailand\’s private

sector is that the Yuan needs to appreciate at least another

10 percent before Thai companies realize any advantage

against their Chinese competitors. They believe such

appreciation is unlikely any time soon since they ascribe the

July 21 action to a political rather than an economic

decision by the Chinese authorities and expect that further

Yuan appreciation will again be modest and based more on

politics than economics.

BOYCE

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Written by thaicables

July 7, 2011 at 5:42 am

Posted in China, Unclassified

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