Views divided on impact of Fed rise
RESEARCH houses have come out with differing views on the impact of the latest rise by the US Federal Reserve in its benchmark federal funds rate.
Krungsri Global Markets Group estimated an upside limit for the US dollar when the US rate is approaching the neutral level, indicating a higher possibility for the Bank of Thailand's Monetary Policy Committee (MPC) to start balancing its monetary policy before the end of this year.
According to Siam Commercial Bank's Economic Intelligence Centre (EIC), the MPC pays more attention to the proper monetary policy settings for the Thai economy than it does on the Fed's rate increases.
The EIC expects that Thai monetary policy makers will place greater importance on the risks that Thailand's prolonged low-interest rate environment pose to the stability of the country's financial system, as well as attention on headline inflation and economic expansion.
Thailand may not have to rush to raise rates, given its strong external stability, high current account surplus and big foreign reserves to cope with fluctuations of capital movement, the EIC said.
The research unit forecasts a policy rate rise in the first MPC meeting of next year, or in December at the soonest, with an estimate of more gradual rate rises in this cycle than seen in previous cycles.
On September 19, the MPC maintained the policy rate at 1.5 per cent, with two of seven members voting to raise the rate by 25 basis points.
The Asian Development Bank’s (ADB) chief economist Yasuyuki Sawada said that the faster-than-expected US rate rise has heightened the risks to Asian countries of currency fluctuations and capital outflows, while there could be risks to Asian growth late this year or the next.
Krungsri Global Markets Group said that, in the short term, the impact of the US-China trade war on emerging-market countries and the direction of the Chinese yuan will influence capital movements.
The ADB chief economist said the US rate rise this week may not have much impact on Asia but may pressure Asian central banks to raise their benchmark rates. This would boost borrowing costs for the business sector and consumers, Sawada said.
The benchmark overnight lending funds rate was raised by 25 basis points to a target range of 2 per cent to 2.25 per cent at the Fed’s September meeting. The Fed foresees one more rate rise in December, with three more next year and one rise in 2020.
In the Fed’s statement, it forecast the US economy would expand at a faster than expected 3.1 per cent this year amid steady economic growth and a strong labour market with sustained low unemployment and inflation near its 2 per cent target.
The baht weakened slightly to 32.47 to the US dollar at yesterday's opening, while most of its regional peers swung in a narrow range. The 10-year US bond yield fell to 3.05 per cent after failing to stay above 3.1 per cent early this week. Global gold prices dropped.
This year, the baht has appreciated by 0.3 per cent against the greenback, the most in Asia, amid continued money-market fluctuations.
The Fed's removal of the word “accommodative” in its statement in regard to its monetary policy is significant, said Krungsri Global Markets Group.
