Thursday, September 24, 2020

Rate bump of 25 basis points coming

Dec 17. 2018
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ECONOMIC research houses believe that the policy rate will be raised by 25 basis points (bp) at a December 19 meeting of Thailand’s Monetary Policy Committee (MPC), breaking an unchanged streak of more than three years.

HSBC Global Research says the coming rate bump was presaged by the November 14 meeting where a minority of three members voted for a 25bp hike. 

Only one more vote is required on December 19 to tip the balance in favour of a hike.

HSBC Global Research also anticipates that the central bank will revise down 2018 and 2019 growth forecasts, to 4.2 per cent and 4.0 per cent respectively, from 4.4 per cent and 4.2 per cent in the previous assessment. They attribute the revision largely to the downside surprise in the 3Q GDP reading.

Growth and inflation this year are set to meet the preconditions that the MPC set for policy normalisation this year, HSBC Global Research noted.

“We believe growth and inflation conditions are strong enough to support the start of monetary policy normalisation,” their statement added.

That said, the policy decision is unlikely to be unanimous, as some MPC members maintain a dovish view on growth. Somchai Jitsuchon, for example, has struck a dovish tone recently, citing an upsurge in trade protectionism and uneven domestic demand as risks to the economic outlook for next year. 

HSBC Global Research also said it that it would be important to look out for any guidance on following the path of policy normalisation. 

“We currently expect one 25bp rate hike in 2019, likely to occur in 2Q. But we also see the possibility that the central bank may signal a more dovish stance at this week’s meeting, guiding the markets towards a long pause following any rate hike.”

Kasikorm Research Centre also expects Wednesday’s MPC meeting will increase the policy rate from 1.50 per cent to 1.75 per cent. They attribute the bump in part to balancing the country’s economy and reducing the long-term risk.

“Although the country's economy in the third quarter of this year grew only slightly, it still shows signs of growth in the fourth quarter of this year and for the next year. Increasing the policy rate will help the Bank of Thailand to manage the country’s risk from the global economy, and control the capital in and out flow that has now been impacted by the Federal Reserve Board (FED) interest rate increases three times in this year,” the research said.

However, the research centre believed that the pump would not reflect an ongoing policy to increase interest rates, but rather a temporary policy to maintain the country’s economic growth and manage the policy space.

Meanwhile, the FED meeting scheduled for December 18-19 also has signs that it would again increase its policy rate.


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