Kasikornbank (KBank) expects the baht to bottom out in the next two months, depending mainly on the US Federal Reserve's benchmark interest rate hike.
It also expects the Bank of Thailand to increase its benchmark interest rate two times this year.
KBank assesses the Monetary Policy Committee (MPC) will increase its policy rate by a quarter-point at its meeting in August.
Then the central bank will maintain the rate at its September meeting to monitor the economic outlook, especially for inflation and the foreign exchange rate, said KBank.
The MPC is expected to increase the policy rate again by 25 basis points in November, which is its last meeting this year, according to KBank.
At the June meeting of the MPC, the group voted 4-3 to maintain the policy rate at 0.5%, where it has remained since May 2020. The three members who voted to raise the policy rate sought an increase of 0.25 percentage points.
Many research houses expect Thailand to begin a cycle of policy rate hikes in the second half of this year in response to persistently high inflation.
Kobsidthi Silpachai, head of market and economic research at KBank, said two policy rate hikes by a total of 50 basis points this year could be sufficient to contain the inflation rate and manage the foreign exchange rate.
KBank predicts Thai economic growth of 2.5% this year.
However, baht movement mainly depends on how hawkish the Fed is in its policy rate increases, he said. KBank forecasts the Fed to hike its policy benchmark rate by 200 basis points throughout this year.
Aggressive rate hikes by the Fed would strengthen the US dollar compared with other currencies, including the baht, said Mr Kobsidthi.
In this scenario, he said the baht would continue to weaken for the next two months and it could reach a nadir of low 36 against the greenback.
The Bank of Thailand will need to manage the local currency to make it move in line with regional peers, said Mr Kobsidthi.
An improving tourism sector in the second half of this year will continue to support a firmer baht to the dollar, reaching 33.5 against the dollar at the end of this year, said KBank.
For the first four months this year, foreign tourist arrivals increased to around 800,000 and the bank forecasts the number to reach 4 million throughout the remainder of this year.
