During the afternoon of August 26, 2009, the Monetary Policy Committee of the Bank of Thailand (BOT) resolved to hold the 1-day R/P rate at 1.25 percent as expected. The post-meeting MPC statement continued to express an optimistic view toward the economy, as did the previous meeting in July. The MPC statement iterated that the global economy and financial markets had been stabilizing and the economic growth of the G3 and most Asian countries had improved over the prior quarter. However, the MPC viewed that the global turnaround was still uncertain. Domestically, the Thai economy recorded better performance in 2Q09 with a lower contraction YoY, and positive growth QoQ. The latest economic indicators, especially for the manufacturing sector, exports, employment and private spending all showed improvement.
The stabilizing signs seen in the Thai economy, as evidenced recently, may continue into 2H09. KASIKORN RESEARCH CENTER (KResearch), however, holds the view that despite the subsiding economic risks, many challenges still exist and need close attention. Among them are the government's economic stimulus efforts – currently the key driver for economic growth – and domestic political stability. Confidence of the private sector at home and abroad, as well as budgetary disbursements to stimulate the economy will hinge mainly on these two matters. Oil prices will also be another key risk factor. Exorbitant oil prices may adversely affect the momentum of the Thai economic rebound, inflation and the BOT's monetary policy implementation.
KResearch forecasts that the MPC may hold their policy rate unchanged at 1.25 percent over the remainder of this year and into 1H10. Any expectation toward a bullish interest rate trend may become more obvious around the end of this year or the beginning of next year, especially if the recovery trend continues and inflationary pressure emerges. In KResearch's view, an upward cycle in banks' interest rates may occur before any increase in the BOT's policy rate due to expected declines in the banking liquidity amid heightened competition between conventional deposits and alternative savings products with more attractive returns. Going forward, more upbeat economic activity may also lead to a resumption of credit growth.
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