Monday, January 18, 2021

KResearch worried over rising debt, says policy rate cut possible

Jan 14. 2021
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By The Nation

The Bank of Thailand (BOT) may cut its benchmark interest rate to a new historic low of 0.25 per cent, Kasikorn Research said on Wednesday. It also warned that households and businesses remain vulnerable to debt, but insisted that Thailand’s banks were still strong amid the second wave of Covid-19.

Thanyalak Vacharachaisurapol, deputy managing director at Kasikorn Research Centre, expressed concern that household debt in the third quarter last year stood at 86.6 per cent of GDP, and is expected to rise above 91 per cent by the end of this year.

High household debt has hit many countries, following low or falling GDP growth amid the pandemic. The Thai government has responded by helping debtors facing liquidity problems, while trying to alleviate household debt levels.

The BOT and financial institutions are implementing additional assistance measures, while extending existing measures such as the debt holiday (until mid-2021) and debt restructuring. 

As for the BOT’s benchmark policy rate, KBank forecasts it may fall from 0.5 per cent to 0.25 per cent given the highly uncertain situation, but sees a zero-interest rate as unlikely given the BOT is equipped with other tools to ease financial costs for businesses. 

“Regarding the outlook for the baht, although the Thai currency is expected to soften slightly over the next two weeks, from the Bt29.50 per US dollar reported at 2020 year-end due to the US presidential election results and new economic stimulus measures. The baht will likely strengthen during the remainder of 2021 when the market gives more weight to the greenback’s fundamentals, such as the US budget and trade deficits, and the Fed’s quantitative easing programme.

Meanwhile, financial institutions overall are now more robust and have more liquidity than during the 1997 financial crisis, though they remain vigilant towards risks from potential asset-quality problems, said KBank. However, the business and household sectors have become more fragile due to mounting debt and eroding competitiveness. Despite this, KBank views that there are opportunities in every crisis for those prepared in advance and able to grab opportunities when they arrive – for instance, by developing mobile banking, online shopping and food delivery, all of which have been enjoying rising profits during lockdown periods. 

Plans to vaccinate half of Thailand’s population against Covid-19 through 2021 and in early 2022 should mean consumer and business confidence, in particular tourism, will bounce back, said Thanyalak. However, she warned they may not recover to pre-pandemic levels in 2022. People are also expected to maintain “new normal” and social distancing habits, such as working from home and using digital communication technology. International travel may take at least 2-3 years to return to normal, she added.

Nattaporn Triratanasirikul, KResearch assistant managing director, said the second wave of Covid-19 differed from the first wave in three aspects. First, the number of daily infections is higher. Second, the infection scope is more extensive. And third, the origin of the outbreak is in the industrial sector. In addition, the government’s control measures are different, with a “non-lockdown” or a partial lockdown employed this time to maintain a balance between economic and public health impacts. However, the daily infection rate must be monitored to see if it decreases or falls to zero within 60 days, he added. “With a faster end to this round of infections, our economic growth may not fall too steeply from KResearch’s previous estimate of 2.6 per cent.”

 

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