Kasikornbank (KBank) believes the baht will strengthen next year, dependent on internal factors after the US Federal Reserve eases its policy rate hikes.
KBank adjusted its projection from a previous forecast of 37.50 baht to the US dollar at the end of 2022 to 35.25.
The bank's assessment is the baht will gradually appreciate to a range of 33.50-34 baht to the greenback in 2023, said head of capital markets research Kobsidthi Silpachai.
However, he said the baht's movement will remain volatile against the greenback from now until the first quarter next year because of several uncertainties, especially elevated concern about a global recession led by the US and the eurozone, Fed monetary policy and the Russia-Ukraine war.
The market predicts the US inflation rate has already peaked after it registered a lower than expected level in October.
As a result, the Fed is expected to gradually slow hawkish policy rate hikes and it is possible the rate may be cut next year because of overtightening and recession fears, said Mr Kobsidthi.
There are also clearer signs the US economy will enter into recession next year. He said the Fed is expected to increase its policy rate by 50 basis points at the upcoming meeting, down from the market's previous projection of 75 points.
Given the less hawkish tone of the Fed, the dollar has been weakening against other currencies, including the baht, and the greenback is expected to drop more next year.
The Thai economy is forecast to continue it recovery, supported by the tourism sector.
Kasikorn Research Center forecasts economic growth of 2.9% this year before rising to a range of 3.2-4.2% next year, said Mr Kobsidthi. Foreign tourist arrivals are projected to reach 9.5 million this year before surging to 13-20 million next year.
The current account is expected to post a deficit of US$17.2 billion in 2022, improving to a range of a deficit of $3.5 billion or a surplus of $3.5 billion in 2023, according to the centre.
"In this scenario, Thailand's economic circumstances would play a greater role in the baht's movement than the dollar. The baht should show clearer signs of strengthening compared with the dollar from the second quarter next year," he said.
KBank expects the central bank to raise its policy rate by 25 basis points at its meeting next week, up from 1% and continuing to hike the rate to 1.75% in 2023. The rate hikes will narrow the rate differential between the Bank of Thailand and the Fed, said Mr Kobsidthi.
