The Bank of Thailand will raise interest rates next year
Thailand World Daily News from Thailand’s Military Bank’s Economic Research Center (TMB Analytics) expects that Thailand’s interest rates will be lower than the Fed’s interest rates in the future, as the Fed has announced that it will continue to raise interest rates, which will lead to capital flight and affect the Thai baht exchange rate. In order to prevent exchange rate risks from the consequences of greater fluctuations, it is suggested that investors and operators should pay attention to the avoidance of foreign exchange risks.
The research center believes that most outside commentators expect the Fed to raise interest rates twice this year. At the end of the year, the US policy interest rate should be in the range of 1.25-1.50%, which is the same as Thailand's policy interest rate of 1.50%. In addition, senior Fed officials also stated that they will raise interest rates three times next year, so that if the Bank of Thailand remains on hold, the Fed's interest rate level will surpass Thailand. The difference in the interest rate level will bring about the transfer of funds and exchange rate fluctuations, which is something that operators will worry about.
Generally speaking, countries with higher risks should maintain higher rates of return or interest rates. When the interest rate level set by the Federal Reserve is higher, it will definitely attract funds to flow into the market and funds flow out of the Thai market in order to pursue higher returns. Will drive the devaluation of the Thai baht. From the fourth quarter of 2004 to the second quarter of 2016, although the Fed's interest rate was about 0.25-0.75% higher than the Thai interest rate, about 225 billion baht still flowed into the Thai market, causing the Thai baht to appreciate by about 6.7%. Thailand’s economic growth is relatively stable, with an average GDP growth rate of 4.8%.
Researchers believe that there is a chance that foreign capital will flow into the Thai market as before, but if Thailand’s interest rate level is lower than the Fed’s interest rate, the scale of inflow capital will be reduced, because Thailand’s economic growth level is only 3-4%, which is low. In neighboring countries such as Malaysia, the Philippines and Indonesia, the rate is about 5-6%. In addition, the economic recovery of major economic entities such as the United States, Europe, and Japan is gradually becoming clearer, so that investors have multiple choices for investment instead of focusing on Thailand.
In addition to the decrease in inflows, when the Fed's interest rate is higher than Thailand, the interest rate differential will be negative. Operators must be reminded to be prepared for the 6-month interest rate differential in the past year. +0.05. The research center believes that the average interest rate difference between the Thai baht and the US dollar will be in the range of 0.10 to -0.03, which will make the forward exchange rate obtained by the exporter who has made the foreign exchange forward contract lower than the current exchange rate. Therefore, in this case, the importer There will be gains in foreign exchange forward contracts, while exporters will lose profits in foreign exchange forward contracts, because the forward exchange rate will be lower than the real-time exchange rate.
In order to alleviate the pressure of the gradual widening of the policy interest rate differential, the research center expects that the Bank of Thailand will begin to raise interest rates next year. As Thailand’s economy continues to recover and the inflation rate has begun to show positive growth, it is possible to raise interest rates. Correct, it is estimated that the Bank of Thailand will raise interest rates twice next year. Therefore, operators must be prepared to deal with risks caused by changes in exchange rate fluctuations, as well as to prepare for increased fiscal costs due to interest rate increases.