Fed to raise rates this month: KBank
The bright outlook for the US economy and the looming return of the US government shutdown will tip that country's Federal Reserve into initiating its long-waited interest-rate lift-off this month, Kobsidthi Silpachai, head of market and economic research
The return of baht appreciation this week is in line with other emerging markets, which shows that investors are easing their worries over the Fed’s rate increase. They think the Fed may postpone the increase to next year.
US gross domestic product is likely to grow by 2.8 per cent this year, KBank believes.
If the Fed has no clarity on starting interest-rate normalisation this year, its reliability will be reduced and this might influence its monetary policy in the future.
The strengthening of the baht is short-term, Kobsidthi said. It will end before heading into depreciation before the Fed meeting from October 27-28.
Baht to slide
After the Fed raises rates this month, the market will become more volatile and the baht could slide for a while because the market had expected the Fed to make its move next year, he said.
KBank, however, is leaving its target for the baht against US dollar at between 36.75 and 38 by the end of next year. Thailand’s policy interest rate will stay at 1.50 per cent throughout this year. The central bank is expected to start upping the rate next year.
The two rate cuts this year had the objective of weakening the baht, but now that the currency has dropped enough, the Bank of Thailand has no need to cut the benchmark rate further. The low interest rate has also had limited impact on domestic consumption, Kobsidthi said.
The slowdown in consumption due to high household debt together with the shrinkage in exports has left KBank maintaining its forecast for Thai GDP growth this year at 2.8 per cent – the same as the United States.
