Money market well placed if Fed ends stimulus: BOT

BOT Governor Prasarn Trairatvorakul said yesterday that if the Fed cancels its domestic bond purchases and foreign investors pull their money out of Thailand, that would not rattle the local money market or upset the country’s financial stability and liquidity.

The country has various monetary tools at its disposal, a suitable level of foreign reserves and prudent interest-rate policy, while foreign investment in government and BOT bonds amounts to only Bt800 billion (US$26 billion), or 12 per cent of total Thai bonds. The recent foreign selling dropped foreign bond holdings slightly to 11 per cent.

“Comparing [foreign holdings] to the country’s international reserves of $200 billion, we have sufficient reserves,” Prasarn said.

Liquidity is staying at Bt4.7 trillion.

Given the global economic uncertainties, the central bank is constantly monitoring money-market movements, focusing on the Thai economic balance, and is closely following changes in factors with caution for its monetary policy.

Recently, foreign capital has fled Asian countries, including Thailand, on concern over the tapering off of US stimulus measures.

 

KResearch 

However, KResearch expects the Fed to maintain its monthly bond purchases under the QE programme at $85 billion at the Federal Open Market Committee meeting today and tomorrow and leave the fed funds rate unchanged for low inflationary pressure. 

The Fed has been facing higher asset bubbles and inflation risks while keeping interest rates low for a long period.

KResearch said the Fed has gradually given signals for trimming its bond purchases for gradual market adjustment before ending monetary stimulus and proceeding with interest-rate normalisation. 

If the US central bank cuts back on its monetary stimulus amid the US economy’s sustainable development and positive signs from other major economies, that could boost confidence in the global economic recovery and reduce the volatility of asset prices going forward, the research house said.

However, if the US economic development is worse than expected, the Fed may maintain or increase its monetary stimulus, which could pressure capital to move to emerging economies again, it said.

Investors across the world have kept adjusting their investment portfolios while adopting a wait-and-see attitude towards monetary measures that could emerge from the US Federal Open Market Committee’s meeting, according to Trinity Securities. 

Visit Ongpipattanakul, managing director of Trinity Securities, said that last week, investors across the world sold assets worth nearly $9 billion in emerging markets. The third largest sell-off in 12 years came after the Fed hinted at scaling back its bond purchases, which could affect US bond yields, and the Bank of Japan did not extend its fixed rate operation, which prompted the yen to appreciate and the bond shock to take place.

The brokerage expects the Fed to reduce its bond purchases in September or December and that could cause stock markets to move sideways and wait for new factors. Another big possibility is that the Fed lowers its monetary stimulus next year, which could send stock markets rallying on commodity stocks.

Trinity Securities forecasts the Stock Exchange of Thailand (SET) Index at 1,380 points. That would encourage long-term capital to return to the Thai stock market due to the attractive earnings yield gap. The earnings yield gap is the return on stocks compared to the return on US treasuries. 

   The SET Index yesterday closed at 1,471.04 points, up 5.77 points or 0.39 per cent, in line with most regional shares, with 6.85 billion shares in trading volume worth Bt43.475 billion. Local institutions and foreign investors were net buyers, taking up equities worth Bt2.09 billion and Bt489.08 million respectively.