กรุงเทพฯ--11 ธ.ค.--HSBC Thailand
We had pencilled in a further 25bp policy rate cut for some time, but are now changing our call to a hold through 2016
Domestic demand has improved slightly in recent months, and extra fiscal spending will help maintain the recovery
The BoT continues to highlight risks of high household debt, which reduces its room for policy manoeuvre in the near term
Economy marginally better, fiscal stimulus gets dynamic
We have, for some time now, held the view that there could be a further 25bp policy rate cut by the Bank of Thailand (BoT) before the end of the year. This was based on the fact that the Thai economy continues to recover at a sluggish pace, and that downside risks to growth remain substantial, especially via the export channel. Limited inflation pressures and a robust current account surplus would have given the BoT sufficient room to push rates lower.
But now we think that the BoT will most likely to keep its policy rate unchanged at 1.5% through 2016. The latest economic data have shown further improvement in private sector spending and confidence levels, which will likely encourage the BoT to maintain its cautious stance on the back of high household leverage. More important, the new round of fiscal stimulus measures and the government's newly approved action plans for infrastructure investment in 2016 provide more confidence that the economic recovery will continue, helped by domestic demand.
Last, but not least, BoT Governor Veerathai Santiprabhob's speech at a seminar on 2 December pointed to a greater emphasis on maintaining stability and mitigating the impact of possible higher volatility in the global financial markets rather than boosting growth. He also reiterated the need for a cautious approach to financial stability, as a prolonged low-rate environment can induce excessive risk-taking behaviour. He added that "demand-management macroeconomic policy" will not address structural issues in the longer term, while the BoT will do its part to "safeguard stability, support
recovery, and facilitate long-term structural reforms".