Thai gains seen in US rate hike
THE US Federal Reserve is likely to raise its benchmark interest rate after the Federal Open Market Committee ends its two-day meeting today, seeking to tame inflation resulting from such government policies as higher infrastructure investment and wage increases, experts say.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said the Fed was expected to raise its key rate twice this year, the first now and the next in September.
Previously, the Fed announced that it would increase the federal funds rate three times this year.
Montree Socatiyanurak, director at the National Institute of Development Administration, said that given White House policies aimed at a major US economic recovery through job creation, higher wages, tax incentives for business and bringing capital back into the US, it was highly possible for the Fed to raise its rate by 25 basis points to 1.00 per cent to slow down inflation.
Kobsidthi said a higher US interest rate would be positive for Thailand.
“Thai exports will gain from the US dollar’s appreciation and the baht’s depreciation. This could have a positive effect on the Thai economy, whose main structure is [based on] exports and tourism, and help ease concerns on deflation,” he said.
Montree agreed, expecting the dollar to appreciate against other currencies in the short term.
At first, foreign capital is projected to move out of short-term Bank of Thailand debt instruments, Kobsidthi said. Foreign holdings of these short-term debt instruments dropped from Bt90 billion to about Bt70 billion last Friday.
If the Fed signals a cut in its |asset purchases under the quantitative easing programme, about Bt500 billion to Bt600 billion in foreign capital invested in Thai Finance Ministry bonds will |likely flow out, he said.
KBank forecasts Thai gross domestic product to expand by 3.3 per cent this year, with export growth of 0.8 per cent.
Kobsidthi said a narrower spread between Thai and US interest rates would result in depreciation of the baht late this year, but the weakening would not be severe as Thailand has a high current-account surplus.
The baht is expected to average 35.2 per US dollar in the current quarter, 35.4 in the second quarter and 35.7 by year-end.
Montree expects the baht to move in a range of 35.5-36.5 per dollar in the short term if the US key rate is raised as expected.
Kobsidthi expects no change in the BOT’s policy rate as that could slow down the Thai economy.
