The US Federal Open Market Committee (FOMC) made a near-unanimous decision with nine to one votes to begin tapering the QE program by USD10 billion/month, starting January 2014. Their monthly purchases of mortgaged-back securities and Treasury bonds will thus be reduced by USD5 billion each, decreasing the total asset purchases down to USD75 billion, versus the USD85 billion spent previously since January 2013. Their Federal Funds Rate, however, is retained at 0.00-0.25 percent for the time being.
In response to this news, we at KResearch view that financial markets have not yet panicked terribly. Meanwhile, the USD strengthened against other major currencies as well as Asian currencies. The reason behind this is likely that the Fed's holding of their Fed Funds Rate at the status quo – despite the likelihood that the US unemployment rate will slide continuously to below 6.5 percent – is ameliorating alarm.
As for Thailand, KResearch believes that we should be able to cope with any fluctuations in financial markets triggered by this crucial Fed move, given our international reserves and the BOT's capability in handling liquidity in the Thai monetary system. We tend to believe, however, that Thai government bond yields and Baht movements will trend with the overall direction determined by US financial markets.