Kasikornbank (KBank), a leading banking group of Thailand, is forecasting a one-time only US Federal Reserve (Fed) rate hike for 2017. KBank, represented by their head of capital markets research, Kobsidthi Silpachai, is confident in their prediction as they said that inflationary pressure could go lower than anticipated. What’s more, KBank also sees that the market will be cautious especially because it is expected that the dollar will be strong enough to dampen competition between US companies.
In a statement Mr Kobsidthi Silpachai confirmed the Thai banks forecast saying, “We expect only one rate hike from the Fed this year, lower than the three increases signalled by the Fed, since we believe that inflation may not be as high as earlier expected and the Fed will also have to consider the competitiveness of US companies. As the market has priced in this news, the US dollar increased even before the Fed jacked up its rate in December .”
Furthermore, Mr Kobsidthi Silpachai emphasized the move that most investors have resulted in doing: turning to safe havens. 2016 geopolitical events including the US Presidential elections and the Brexit have pushed investors to seek asylum. Trump’s fiscal expansionary policy also adds to the reason for this as it caused the strengthening of the dollar.
Another factor that would refrain the Fed from further hiking their interest rates is the relationship with China. Currently, the Chinese yuan is being pressure by the US dollar. This is seen as a reason for some of Chinese exports to cheapen. The yuan has already lost over 7% versus the dollar.
Mr Kopsidthi Silpachai continues, “As a result, inflation in the US might not be as high as the Fed had earlier expected, lowering the need hike the target rate several times this year.”
This downward path that the Chinese yuan is tracking will give the Fed the chance to raise rates at a relaxed pace so they can maintain the competition among US companies.