K-Research doubts that the Bank of Thailand will keep its rates as it is for at least two more years.
According to Charl Kengchon, manager director of K-Research, was quoted saying that holding interest rates is the most likely move for the Bank of Thailand because the country is currently experiencing subdued inflation. This allows the benchmark rates to stay still in spite of the global economic changes, particularly the impending interest rate hike of the Federal Reserve this December.
The steady interest rate will not hold back growth in Thailand though according to K-Research. Domestic consumption is set to expand by 2.2% while GDP growth is anticipated to be at 3.3% with the good flow of domestic investment. In fact, domestic investment is seen to get better at 4.4% by next year. Meanwhile, exports is predicted to also be a factor in bolstering the Thai economy with an anticipated growth of 0.8%.
The election of incoming President Trump also has effects on Thailand. While the market volatility has been a short-term affair, the long-term effects could come in the form of trade changes. It is a well-known fact that Trump is against TPP or the Trans-Pacific Partnership and foreign direct investment or FDI. This could mean that the ASEAN countries including Thailand, will seek out new opportunities that is looking to be offered by China. This poses as a bit of a conflict as Trump is known to be averse with the Chinese.
Charl Kengchon commented on the matter saying, “Thailand’s FDI, especially from China and Japan, would decelerate in the mid-term, around the next two years, as foreign investors would prefer to wait and get a clearer picture of Mr Trump’s policies. This would have an impact on domestic investment and local business operators and they should prepare for adjustments in line with changes in the global situation.”
Kasikorn Research Center or K-Research is the academic arm of one of Thailand’s leading bank group, Kasikornbank.
The International Monetary Fund (IMF) has advised Thailand to cut interest rates as the country experience a slowing economy coupled with lower inflation.
According to IMF, there exists “a scope for further monetary easing.” They added that the negative output gap, the weaker consumer prices, and the downside risks merit a supplementary “monetary accommodation.” IMF believes that it is time for the policy makers of Thailand to change rates because the lack in easing will, expectedly, keep inflation below the target for years. Furthermore, the IMF believes that “tighter macroprudential policies can safeguard financial stability in a low interest rate environment.” They think that Thailand is in dire need of expansionary fiscal and monetary policies to bolster the Thai economy who is lagging behind most Southeast Asian nation.
IMF has expressed concern upon the release of economic reports in Thailand. Consumer prices has increased for the first time in April after more than a year of constant declines. The inflation rate remains below the target of 1% to 4% at 0.5% according to IMF, putting the blame of the lower-than-expected data on cheaper oil price and weaker demands.
The Thai Central Bank has refused to acknowledge the need for monetary easing saying that the move to lower rates will supply limited support to the economy. At last meeting, the policy makers announced that it will keep resilient in its unchanged rates which has been in effect for the last eight consecutive meetings since June. They said that the easing will have little effect as the root of the problem is caused by “global and domestic structural problems.”
The military coup of May 2014 has put the Thai junta into power led by then General Prayut Chan-o-cha who is now the Prime Minister. Under his command, economic stimulus measures amounting to more than 645 billion baht or $18 million dollars have been carried out since September 2015. The biggest source of the contracting economy is the lower exports that lost 1.4% in the first quarter. Meanwhile, a booster for the economy has surprisingly come from tourism which grew by 15.5% in the first quarter.
While IMF’s suggestions remain unacted upon, it still gave Thailand a 3% expansion forecast for 2016 and a 3.2% expansion for 2017. The World Bank predicts 2.5% and 2.6% for 2016 and 2017 respectively.
Economists are expected the Federal Reserve to change their language regarding monetary policy and let go of their previous pledge to keep interest rates low for a “considerable time.”
According to 68% of economists surveyed by Bloomberg News, the US central bank is likely to make use of the term “patient” when describing its intentions for monetary policy going forward. The Federal Open Market Committee, which meets starting today until tomorrow, is seen to hike up its interest rates in the middle of 2015.
Officials of the bank are currently discussing the timing of when to tighten its policies are expected to make use of favorable jobs data bringing them close to achieving the Fed’s goal despite falling prices of crude oil that are preventing inflation from picking up. In the US, 321,000 additional workers were hired in November, the highest number in nearly three years, while unemployment fell to 5.8% to hit its lowest in six years and approach the Federal Reserve’s target of between 5.2% and 5.5%.
59% of economists forecast that a drop in unemployment will be one of the factors emphasized when debates on rate increases begin, while 41% said that inflation lingering below the target level will be enough to delay the timing. The central bank has held its borrowing costs to near zero since December 2008 even after ending its final round of quantitative easing last October.
Committee members are expected to make an announcement and release updated economic data tomorrow afternoon which will be followed by a press conference led by Fed chair Janet Yellen.
The US economy is predicted by economists in a separate survey conducted by Bloomberg News to grow by 2.9% in 2015, the best rate in ten years.
Governor Haruhiko Kuroda from the Bank of Japan (BoJ) surprised markets after unexpectedly expanding its stimulus program which raised up stocks and depreciated the yen.
Five out of eight board members of the BoJ, including Kuroda, voted to increase the central bank’s yearly target monetary base from the original 60 trillion to 70 trillion yen to 80 trillion yen or $724 billion. According to the BoJ, it will buy additional exchange traded funds in order to increase its outstanding amounts by 3 trillion yen each year. Only three out of the 32 analysts polled by Bloomberg News had expected an expansion of monetary policy.
The decision of the BoJ comes after recent data projected that it may end up missing its target inflation rate of 2% within two years’ time and alongside a Japanese economy still reeling from the effects of a sales tax hike in April. While analysts had long been considering increased action from Kuroda during the past several months, the governor gave no indications about the decision in the days and weeks building up to the announcement.
Following the decision, the Nikkei 225 Stock Average shot up to its highest level since 2007, while the yen declined by 1.7% against the US dollar as of mid afternoon Tokyo time.
An upcoming decision for Prime Minister Shinzo Abe to further raise Japan’s sales tax to 10% in October next year is also believed to also have played a role in Kuroda’s plans since a suspension of the hike could negatively impact confidence on Japan’s fiscal sustainability.
Just hours before, figures showed that inflation in Japan fell to its lowest level in six months in September. The BoJ then revised down its forecast for its core consumer index for the fiscal year until March 2016 to be at 1.7% instead of the original 1.9%. It sees inflation to be at 2.1% in 2016, unchanged from the earlier outlook.
The bank said that it will be on the path of easing for as long as it takes to stabilize inflation at its desired level.