At the meeting on 14 November, three members voted for a 25bp hike. Only one more vote is needed to tip the balance in favour of a hike. It is also anticipated 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, due largely to the downside surprise in the 3Q GDP reading.
Growth and inflation this year are set to meet the preconditions that the Monetary Policy Committee (MPC) set for policy normalisation this year, HSBC Global Research noted.
Despite the slowdown in 3Q growth, the central bank maintained a positive view on the economic outlook, suggesting that growth will rebound in 4Q. The annual growth rate will likely average above the potential growth rate of 4 per cent. Moreover, headline inflation is likely to average within the central bank's target range of 1-4 per cent in 2018, and to continue to trend within the range in 2019, barring any further slides in global oil prices.
“We believe growth and inflation conditions are strong enough to support the start of monetary policy normalisation,” the statement added.
That said, the policy decision is unlikely to a unanimous one 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 next year.
HSBC Global Research also said it that it would be important to look out for any guidance on the following path of policy normalisation path.
“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 next week's meeting, guiding the markets towards a long pause following any rate hike.”
Published : December 17, 2018
By : The Nation