1. KBank Capital Market Perspectives Market Updates
Macro / FX / Rates
Policy rate steady on floods’ impact and global uncertainties
19 October 2011
Overview:
Nalin Chutchotitham - Kasikornbank
- The Bank of Thailand (BOT) held its policy rate unchanged at 3.50% today after nalin.c@kasikornbank.com
having maintained a tightening-bias over the monetary policy during the past nine
meetings since July 2010.
- While the BoT continued to warn of remaining inflationary pressure during past
policy statements, today’s reflection on economic trends differ by a large margin,
with risk-weight clearly shifting to the “growth” side. In particular, the BoT noted a
much weaker economic growth momentum in the U.S. and Europe. Also, debt
crisis in the euro area continues to pose threats to the region’s banking sector and
further contagion to the real sector of large economies in the group. The central
bank also expressed some concerns over moderated exports growth in Asia while
the flooding situation at home continued to worsen and likely to pose substantial
impact on the Thai economy, especially for the country’s production capacity and
logistics network.
- On the positive side of things, the BoT expects that reconstruction efforts would
help to lift domestic demand quickly and hence maintained a cautious note on
inflationary pressure. We agree with this analysis so far but we would like to caution
that the impacts to the manufacturing production capabilities could be more than
expected, given that the supply chain of key industries (electronics and automobile)
had been affected severely by the floods. Meanwhile, delayed and forgone income
of a significant portion of the labor force could impede spending power of
consumers in the next few months as well.
- Inflationary pressure: We sensed the policymakers’ confidence from the
statement that inflationary pressure would remain in check, given the policy rate at
3.50%. In addition, decelerating pace of growth, moderated oil prices and a more
stable inflation expectation should all help to prevent the build up of inflationary
pressure. Yet, Q4 could still see short-term surges in prices due to transportation
difficulties and lower agricultural production.
MPC had raised policy rate by 1.50% this year alone Bond yields showed market priced in the pause
% % Government bond yield curve
4.5 4.25
4.0 4.00
3.5 3.75
3.0 3.50
2.5 3.25
2.0 3.00
1.5 2.75
1.0 2.50
0.5 2.25
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
Repo rate 12m deposit rate MLR - 4% policy rate 2y 5y 10y
Source: Bloomberg, KBank Source: Bloomberg, KBank
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2. - Rate cut speculations: The MPC deemed that the current level of policy rate is
still accommodative for growth, indicating that a rate cut is not likely in the next
th
meeting on November 30 unless the abovementioned risks to the global economy
and domestic growth momentum are suspected to be deeper than thought. We will
see new forecasts by the BoT on October 28th when the Inflation Report is
released. However, we should note that one MPC member voted in favor of a rate
cut today while the remaining six called for a pause. A rate cut is a classic response
after a major disaster and had been employed by New Zealand after the
Christchurch earthquake. We expect that the policy rate would remain on hold
until the end of the year 2012 on account of weak global economic growth
next year.
GDP Growth %YoY and %QoQ SET index in range trade
% Index Foreign daily net buy of Thai stocks $ mn
15 1200 400
12.0
1150 300
9.2
10 1100 200
5.9 6.6
3.7 3.8 1050 100
5 2.7 2.9 3.2 2.6
2.1 1.3 2.0 1000 0
0.2
0 950 -100
-0.4 -0.2 900 -200
-2.4 -2.8
-5 850 -300
-5.2
-7.0 GDP yoy GDPsa qoq 800 -400
-10 Jul Aug Sep Oct
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 SET Index (left axis) Foreign net buy (daily, $ mn, right axis)
Source: NESDB, KBank Source: Bloomberg, KBank
MPC Decision on 24th August 2011 MPC Decision on 19th October 2011
Mr. Paiboon Kittisrikangwan, Assistant Governor, Bank of Mr. Paiboon Kittisrikangwan, Secretary of the Monetary Policy
Thailand, announces the outcome of the Monetary Policy Committee (MPC) committee (MPC), announces the outcome of the meeting today, as follows.
meeting today, as follows.
The MPC assessed that the global economic outlook had deteriorated
The MPC assessed that the risks to economic growth of the markedly as a result of the impasse over the resolution of the euro area’s
advanced economies had increased as the US economic growth continued sovereign debt problem, which prompted a surge in financial market volatility
to slow to a rate lower than expected. Core member economies in the euro on concerns that spillovers onto the banking sector and the real economy will
area began to slow somewhat. Meanwhile, Asia is expected to be able to become more severe. Latest US economic data indicated a fragile recovery
withstand some of the impact from the global economic slowdown due and market perception of a recession had increased. In Asia, export growth in
to the resiliency of its domestic demand and exports as well as remaining some countries moderated in line with the global economic slowdown.
monetary and fiscal policy space to stimulate the economies. Nonetheless, firm domestic demand and available fiscal policy space should
help to cushion growth and trade within the region from the impact of a
The MPC agreed that the slowdown in advanced economies slowdown in advanced economies.
would partially weigh on Thai exports. However, expanding intra-
regional trade in tandem with the continued growth of domestic Preliminary data for 2011 Q3 pointed to continued growth of the Thai
demand in Asian economies as well as export diversification to new economy though the effects of a softer world economy became evident in the
markets will help mitigate the impact. Domestic consumption and moderation in export growth. Going forward, intra-regional trade and domestic
investment are expected to expand due to favorable employment demand, particularly from forthcoming government stimulus measures, would
conditions, improved confidence, robust growth in credit demand, and help limit downside risks to growth. The MPC noted the severity of the
fiscal stimulus going forward. floods, which had already brought about partial halt in some production
sectors, and would substantially curtail economic growth in the
Despite the slowdown in global oil and commodity prices, remaining part of the year from previously projected. Nevertheless,
inflationary pressure remained as domestic demand continued to expand reconstruction spending would provide support for domestic demand to
amid fiscal stimulus. As a result, inflation expectations have risen. gradually pick up in the periods ahead.
The MPC judged that, despite increased risk on growth Inflationary pressure continued to be sustained by growth in domestic
emanating from risks on global growth compared to the previous meeting, demand, though declines in input costs, such as moderated oil prices from a
the Thai economy retained its growth momentum but with heightened risks weaker global economy, as well as more stable inflation expectations would
to inflation, together with a sub-normal policy rate. The MPC deemed it lessen inflationary pressure going forward. Nonetheless, upside risks to
appropriate to continue policy rate normalization to contain inflation from higher public and private spending as the floods
inflationary pressure. The MPC therefore decided with a 5-2 vote to raise recede would need to be monitored.
the policy interest rate by 0.25 per cent, from 3.25 to 3.50 per cent, effective
immediately. The MPC will closely monitor global economic developments The MPC deemed that the current level of the policy rate is
and inflationary pressure and stands ready to take necessary action to appropriate in addressing upcoming inflationary pressure and supporting
ensure sustainable growth for the Thai economy. economic adjustments amidst heightened uncertainty in the global economy.
Meanwhile, with the floods not yet over, their impact on the economy was
not fully evident. The MPC therefore voted 6 to 1 to hold the policy interest
rate at the current level of 3.50 per cent, with one vote in favour of a 0.25 per
cent decrease. The MPC would remain vigilant in monitoring developments of
risks and stand ready to take appropriate policy actions.
Source: Bank of Thailand Source: Bank of Thailand
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4. Disclaimer
For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or
sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we
believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained
herein. Further information on the securities referred to herein may be obtained upon request.
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