A 25bps cut is likely: HSBC
Bank of Thailand is expected to cut the policy rate by 25 basis points to 3.25 per cent to support the economic recovery, even if price pressures are on the rise, according to Hongkong and Shanghai Banking Corp.
HSBC said in a research note that this is a tricky stuff, as price pressures are up and the economy is likely to rebound over the first half of 2012. Prudence would thus argue for a hold.
"On the other hand, Thai companies will face major new investment outlays and steeper production costs, at least in the short-run. To support sentiment and abet the reconstruction process, a cut in interest rates would certainly be helpful. We split the difference: expect the Bank of Thailand to cut rates by 25 basis points at its upcoming meeting, enough to signal support but not too aggressive to undermine its inflation fighting credibility. We believe only when the recovery is firmly
established will rate hikes kick in again over the second half of 2012."
HSBC expects the policy rate to be raised by 50 basis points to 3.75 per cent at the end of next year. Earlier, it expected the rate to end at 3.50 and 4 per cent in 2011 and 2012, respectively. The Monetary Policy Committee will convene on Nov 30, for the last time this year.
As agricultural and manufacturing output is dipping, it revised down the 2011 economic growth forecast from 3.9 per cent to 1.7 per cent.
Yet, it expects a strong rebound as the flood recedes and re-construction spending kicks in.
"We have pencilled in a sharp rebound during the first half of 2012. Apart from a strong kick coming in from the government; foreign aid, insurance flows, cheap credit and rebound in consumer confidence will likely drive this growth. For the rest of the year, the trajectory would depend on external conditions. In line with these assumptions, our 2012 GDP forecast also comes down to 4.5 per cent versus 5 per cent predicted earlier," it said.
