Fed rate hike 'to have little effect on emerging markets'

The Federal Open Market Committee (FOMC) concluded its two-day meeting yesterday but was not due to announce its decision until 1am today Thailand time. The BOT has gone along with the market’s consensus that there would be no rate increase at this time, but there would likely be one in September.

The Fed has adopted a policy interest rate ranging from 0-0.25 per cent since 2008.

“The US economy has improved, and what the market will pay close attention to tonight is Fed chairwoman Janet Yellen’s post-FOMC press conference and a review of the latest FOMC economic projections,” BOT spokesman Chirathep Senivongs Na Ayudhya said yesterday. 

“The market consensus expects the Fed to increase the rate in September, and the central bank believes that there will not be as much excitement as at the start of US QE tapering period, since most of the global market has acknowledged, expected and priced-in the US Fed rate hike already,” he said.

Tim Leelahaphan, Maybank Kim Eng Securities (Thailand) economist and assistant vice president of its research department, said the securities firm expected Yellen to be “hawkish” last night. It believes that the pace of the interest-rate increase, once it is initiated, will be gradual.

“Indicators such as the US non-farm payroll and the numbers in the retail sector have improved as well as the outlook for the economy. But the recovery is not 100 per cent yet,” so Maybank Kim Eng expects a decision to raise the rate “from September onwards”. 

Navin Intharasombat, first senior vice president of Kasikorn Asset Management, said the global economy was highly unpredictable. Besides uncertainty over the timing of the US rate increase, the debt situation in Greece, geopolitical risks in the Middle East, the fluctuation of global oil prices, the slowdown of economies in Europe, Japan and China, and their policy divergence against the US are all factors.

“Investors have to pay close attention to these factors because it will dictate the investment outlook, which will be surrounded by fluctuations in the second half of this year,” he said.

Chirathep said the euro-zone gross domestic product’s expansion of 0.4 per cent in the first quarter was as much as most expected, so the overall economic outlook of the zone is “OK”. The Greek debt crisis would add only short-term fluctuations in the money market and would not have too much effect on the European Union economy.