Policy rate change ‘unlikely’ this year
THE Bank of Thailand (BOT) is expected to maintain its policy interest rate at 1.75 per cent until at least the end of 2019, according to TMB Analytics.
The next meeting of the country’s Monetary Policy Committee will be on June 26, 2019.
Many central banks are likely to cut their policy rates. Although the Thai economy is likely to slow down, economic stimulus through interest rate reduction will have limited impact due to the high level of household debt, which causes a risk to the country’s financial stability.
The economic outlook of various countries are seen as worsening this year and many central banks such as those of Australia, New Zealand and India, as well as neighbouring Asean countries such as Malaysia and the Philippines, have lowered interest rates at least once in the past six months.
In addition, various key central banks have begun to show that their monetary policies will be more relaxed going forward, according to TMB Analytics. It is expected that the central bank of major economies, such as that of the US, will cut their policy interest rate at least once this year.
Meanwhile, the Japanese and European central banks may also use more relaxed financial measures to manage their economies.
The US economy has displayed worrying signs, including the decrease in employment per month from the average of 223,000 people to 155,000 people this year, or the inflation rate, which has been below the 2 per cent target since October 2018. In April, inflation stood at 1.6 per cent.
The Thai economy, on the other hand, has also been slowing since the beginning of the year and the prospects of a recovery in growth remain unclear. This is because the trade war is still causing a high level of uncertainty in global trade, as well as the delay in the 2020 budget due to delays in the formation of a new government.
The budget delay will set back economic stimulus measures by the new government, such as government investment that may help push the growth of private investment towards the end of the year. The slowdown of the Thai economy since May 2018 may also be a key reason for the BOT to consider reducing its policy interest rate to stimulate the economy.
However, stimulating the economy by reducing the policy interest rate may have a limited impact as the total value of loans taken from commercial banks have risen to Bt4.6 trillion, growing by 10.1 per cent year on year in the first quarter of 2019.
The amount of non-performing loans (NPLs) – loans due for over 90 days – has also been increasing. NPLs currently amount to Bt1.3 billion, or 2.75 per cent of total loans. The highest NPLs are among housing loans, amounting to Bt7.7 billion, followed by automotive loans, at Bt1.9 billion.
The lowering of interest rates by the central bank may stimulate household debt to rise even further, jeopardising the financial stability of the Kingdom’s economy.
TMB Analytics predicts that even though the global policy rates will decrease and the Thai economy will likely slow down, the risks on the financial stability of the country will pressure the BOT not to cut rates this year. TMB Analytics expects the central bank to maintain their policy rate at 1.75 per cent throughout 2019.
In this financial environment, Globlex Securities (GBS) predicts that the Stock Exchange of Thailand (SET) will be in the range of 1,660 and 1,693 points. The securities brokerage firm suggests that investors put their money in stocks that are in the SET50 category. As for the price of gold, their suggestion for short-term speculation ranges between US$1,330 to 1,360.
The Thai stock market’s direction has responded positively to both domestic and external factors, said Wilasinee Boonmaungsong, director of the research department of Globlex Securities Co Ltd (GBS). She cited the Industrial Confidence Index report in May, which showed an increase in purchase orders, sales volume and production volume.
She expected to see the new government accelerate investment in large infrastructure projects to help facilitate foreign investment and stimulate the economy.
The negative factor that has been affecting the Thai stock market is the trade dispute between the US and China, she said, while the local negative factor continuing to impact Thai stocks are worries over political stability of the new government.
Yesterday, the SET index ended at 1,683.60 , up 16.37 points from Monday’s close, with a total trade value of Bt61.97billion, of which foreign investors accounted for Bt4.12 billion in net buy.