No rise in BOT’s policy rate expected

Adding to that is the US Federal Reserve’s expected rise in interest rates hours earlier.

Kasikorn Research Centre believes that the MPC will probably wait to see the effects of the imminent 0.25-percentage-point rate increase in the United States on the region’s money markets before deciding on the direction of this country’s monetary policy.

KResearch said the interesting points that had to be looked out for at the Fed’s upcoming press conference were its predictions for the United States’ gross domestic product, unemployment and inflation rates.

It said it was also worth noting whether the Fed’s handling of interest rates next year was not as aggressive as expected (around two more increases in 2016). If that is the case there should be no severe effect on emerging markets’ capital outflow, it said.

"We had pencilled in a further 25-basis-point policy-rate cut [in Thailand] for some time, but are now changing our call to a hold through 2016," said Nalin Chutchotitham, an economist at HSBC (Thailand).

She said this was based on the fact that the Thai economy continued to recover at a sluggish pace, and downside risks to growth remained substantial, especially exports. Limited inflation pressures and a robust current-account surplus have given the BOT sufficient room to push rates lower, she explained.

"Domestic demand has improved slightly in recent months, and extra fiscal spending will help maintain the recovery while the BOT continues to highlight risks of high household debt, which reduces its room for a policy manoeuvre in the near term."

Nalin said the latest economic data showed there had been further improvement in private-sector spending and confidence levels, which would likely encourage the BOT to maintain its cautious stance on the back of high household leverage.

But she said the most important factor was the new round of fiscal stimulus measures and the government’s newly approved action plans for infrastructure investment in 2016, as they would provide more confidence that the economic recovery would continue and would be aided by domestic demand.

The economy is beginning to show signs of improvement, with the National Economic and Social Development Board reporting that GDP expanded by 2.9 per cent in the third quarter. That is higher than KResearch expected.

The economy expanded 2.8 per cent in the second quarter.

The quarter-to-quarter expansion after a seasonal adjustment of 1 per cent from the second quarter to the third quarter was due to government spending on investments, an increase in private consumption and the export of services, KResearch said.

Private consumption expanded two months in a row (September and October) when compared with last year.

Private investment has a chance to bounce back and expand after years of continuous contraction. And if the economy can maintain this momentum it should expand by 2.8 per cent this year, which should support keeping the benchmark lending rate at the current level in order to maintain the country‘s monetary competitiveness.

Fiscal policy is a more effective tool to stimulate the economy than lower borrowing rates at the moment, said Tim Leelahaphan, Maybank Kim Eng Securities Thailand’s economist and assistant vice president of its research department.

He said the securities firm also believed that the MPC would maintain the benchmark lending rate at 1.50 per cent because of fiscal policy being more effective and the likelihood US rates would rise.