Thailand Economics and FX

Transcription

1 BoT maintained policy rate at 1.5% in unanimous vote The Bank of Thailand (BoT) maintained its policy rate at 1.5% in a unanimous vote for the eighth meeting in a row. It judges that monetary conditions remain accommodative, and it is still necessary to reserve policy space in case of negative shocks. The BoT is still concerned about downside risks to global economic growth, and the possibility that the Thai baht exchange rate may become less conducive to the recovery. Nevertheless, the BoT expects the economy to expand at a similar pace compared to its assessment in March, save for increased downside risks to private sector spending. We expect tourism growth and fiscal spending to keep the economy chugging along and expect the policy rate to remain unchanged through H On the FX front, we note that the THB NEER is not nearly as elevated as it was back in late 2014-early We do not think that more aggressive measures are on the cards, but believe the THB is set to underperform the region in Q2 due to seasonal effects in the current accounts. Facts Monetary Policy Committee (MPC) maintained the policy rate at 1.5% as expected by 21 analysts polled by Bloomberg, including HSBC. This was the eighth consecutive meeting in which MPC members have voted 7-0 to maintain the policy rate. Implications Economics comment: In today's policy statement, the BoT sounded a tad more concerned about economic growth, given the weak economic growth recently. We also think that the statement does not necessarily suggest that the MPC is inclined to ease its policy stance further. In particular, the outcome of the MPC vote remained unanimous for the eighth time in a row. In the past, a few dissenters usually emerge prior to a rate cut (Chart 1). 4 On downside risks to growth Nalin Chutchotitham Economist Banking Corporation Limited, Bangkok Branch [email protected] Joey Chew FX Strategist Banking Corporation Limited [email protected] View HSBC Global Research at: Issuer of report Banking Corporation Limited, Bangkok Branch Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it In this document HSBC may comment on the potential economic impact dependent on the outcome of the UK Referendum. HSBC is not taking a political position and this document and the information contained herein are not intended to promote or procure, or otherwise be in connection with promoting or procuring, a particular outcome in relation to the question asked in the UK Referendum. In the 23 March meeting, the BoT had lowered its 2016 GDP growth forecast from 3.5% to 3.1%. Today, the MPC judged that the economy "would continue to expand at a rate close to the previous assessment", but that there are "greater downside risks on the domestic front", given that private investment has remained low and private consumption has decelerated. The MPC also noted that goods exports (excluding gold) continued to contract and that global economic recovery has remained fragile. Therefore, it sounded a bit more concerned about the possibility of a Thai baht appreciation in the future, partly given the volatile capital flows.

2 4 On monetary conditions and policy room Despite its growth concerns, the MPC maintained its view that it was necessary "to preserve policy space" in the case of unexpected events. The MPC deemed that the monetary conditions had actually eased further after commercial banks had lowered their lending rates (in April), and bond yields remained low. Furthermore, the MPC viewed that "ensuring financial stability" is also vital and continued to cite the need to closely monitor "risks to financial stability from search-for-yield behavior". In the past, it had warned against speculative activities in both the financial and housing markets. 4 Inflation outlook The MPC appeared to be a bit less concerned about deflationary pressures, even if it expects subdued demand to keep upward pressure on prices in check. In April, the reduced base effect of oil prices led headline inflation back above 0%, while core inflation had stabilised. As we have noted in our report (Bank of Thailand Watch: Singing the same tune, 6 May 2016), the gradual rise of actual and expected inflation will help lower real interest rates and loosen financial conditions. 4 In conclusion We share the BoT's concerns about downside risks to growth, but also its assessment that the economy will continue to expand, supported by fiscal spending and tourism growth. We also think that it is possible to see more fiscal stimulus measures in the coming months as some of the existing ones expire. Furthermore, infrastructure investment spending is expected to keep fiscal spending strong in H (see Bank of Thailand Watch: No rate cut surprise expected, 22 March 2016). Our forecast for 2016 GDP growth is 3.0%, whereas growth in 2017 is expected to be 3.1%. It would remain difficult for Thailand to register a strong acceleration in growth but lowering the policy rate further is not likely to provide much of a benefit. On the domestic front, high household leverage and spare capacity in the industrial sector are keeping private sector demand in check. On the external front, we believe that the MPC also recognises Thailand needs structural changes to lift its exports, and a weaker currency will likely only provide short-term relief, and so far, it also seems that Thailand had maintained its exports' market shares in key markets during the past two years (see Bank of Thailand Watch: Singing the same tune, 6 May 2016). Nalin Chutchotitham, Economist Chart 1. Historical MPC decisions Source: BoT, HSBC. NB: * denotes meetings with less than 7 MPC members attending. 2

3 FX comment: BoT reinforces THB's negative seasonality USD-THB rose slightly after Bloomberg reported that some BoT MPC members showed "more concern" about recent THB strength. We can only confirm that later when the minutes of the meeting is published, but for now, we note that the language on the THB in the short policy statement today remains similar to previous commentary - the THB "might not be as conducive to the economic recovery as it could be". While the THB has indeed strengthened against the USD, its 2.3% year-to-date gain is actually a relatively mediocre performance in the region. On a NEER basis, the THB is down slightly, by our estimates (Chart 2). This is very different from the situation in late early 2015 when the THB outperformed significantly, and subsequently led to a strong policy response. The BoT has been more pre-emptive this time around. FX reserves are up USD20bn year-to-date (Chart 3), a 13% increase - substantial by its own historical standards and also compared to other Asian central banks. Foreign bond inflows were surprisingly strong in Q1. But those flows already started to reverse since early April, even before the recent pull-back in broader risk sentiment. Accordingly, the BoT has slowed its FX purchases in recent weeks. For now, we will not interpret this one headline as a signal that more aggressive measures are on the cards. In any case, we believe the THB is set to underperform in Q2, reflecting well-established seasonal effects in its current account - tourism arrivals are usually weaker in May-June than in other times of the year. Thai companies also give up more dividends in May than in other months. Thus, the BoT's jawboning on the THB is merely another reason to be cautious on the currency in the near-term. We expect USD-THB to end the quarter at around 36. Joey Chew, FX Strategist Chart 2: THB has strengthened against the USD, but not anymore so compared to its peers: THB NEER has fallen Chart 3: FX reserves rose sharply in Q1 Source: CEIC, Bloomberg, HSBC Source: CEIC, Bloomberg, HSBC 3

4 Disclosure appendix Analyst certification The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Nalin Chutchotitham and Joey Chew This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means. This document does not provide individually tailored investment advice and should not be construed as an offer or the solicitation of an offer to buy or sell any securities or to participate in any trading strategy. The information contained within this document is believed to be reliable but we do not guarantee its completeness or accuracy. Any opinions expressed herein are subject to change without notice. HSBC may hold a position in, buy or sell on a principal basis or act as a market maker in any financial instrument discussed herein. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analyst(s) are paid in part by reference to the profitability of HSBC which includes investment banking revenues. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. Additional disclosures 1 This report is dated as at. 2 All market data included in this report are dated as at close, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument. 4

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