'US rate hike would mean no Thai rate cut'

Uwe Parpart, chief strategist and head of research at the Reorient Group, said the rosier jobs situation in the US and the markets’ favourable reaction to that pointed to a rate rise.

“A Fed rate hike on December 16, barring some horror event, is now a foregone conclusion, and markets would rather see a stronger than a weaker [US] economy as the inevitable comes to pass,” Parpart said.

However, he said the Reorient Group was not persuaded that the stronger job numbers “portend stronger US growth”.

He said the optimistic market reaction to the jobs situation was not due to expectations the US economy would grow above 2 per cent but probably because the predicted federal funds rate would be less than 1.4 per cent in two years’ time as implied by the 24 months Fed futures.

That translated into continued near-zero real rates for what was a long time in the world of finance.

The US economy generated 211,000 new jobs in November, 11,000 higher than expected, while the October number was revised up from 271,000 to 298,000.

Parpart said the US employment report reinforced the market’s conviction that the Fed would be extremely cautious about raising interest rates after it was expected to do so last month. The US unemployment rate remained at 5 per cent last month.

“Although 12-month futures show an expected fed funds rate of 0.8 per cent a year from now, the highest in the present cycle, 24-month futures predict a rate two years from now of less than 1.4 per cent, down from a peak of 1.6 per cent. If the Fed stops at around 1.25 per cent, the US stock market won’t be too miserable,” he said.

Tim Leelahaphan, Maybank Kim Eng Securities (Thailand) economist and assistant vice president of research Department, said: “The imminent US Fed fund rate normalisation in December has closed the window to a rate cut [in Thailand] and fiscal policy is a more effective tool to stimulate the economy than lower borrowing rates.”

The BOT’s Monetary Policy Committee slashed the benchmark lending rate in March and in April.

The policy interest rate will most likely stay at 1.5 per cent for the rest of this year. The committee is next meeting on December 16. He added that the reasons for the Stock Exchange of Thailand Index slump this month was partly due to the imminent US rates normalisation and a further drop in global oil prices.