BoT: No push from US rate hike
MPC expected to hold rate steady this year
Even if the US Federal Reserve raises its policy rate at next week's meeting -- sooner than expected -- it will not put any pressure on the Bank of Thailand's currently accommodative monetary policy, says a central bank executive.
"If the Fed lifts its policy rate at the coming meeting as the market expects, it will be outside of our forecast, but we still expect the Fed will raise the rate two or three times in the second half of the year," said Mathee Supapongse, the Bank of Thailand's deputy governor overseeing monetary stability.
"However, even if the Fed does raise the rate, it will not put pressure on the Bank of Thailand's monetary policy, but it will cause the baht to depreciate [against the US dollar], which should be a boon to our economic recovery."
The market's forecast of the probability of the Fed raising its policy rate at the next Federal Open Market Committee meeting March 14-15 is almost 100%.
A strong private payroll report in February from the US made a rate hike a near certainty.
The Bank of Thailand's rate-setting panel has held the rate steady at 1.5% since April 2015, and economists forecast it will be left unchanged throughout the year to accommodate the country's economic recovery, which is gaining pace.
Thailand's Monetary Policy Committee is slated to review its 2017 economic growth forecast and reveal an outlook for 2018 at its next meeting on March 29.
The central bank estimates GDP growth at 3.2% this year -- well below the 3.6% projected by the Finance Ministry's Fiscal Policy Office, but within the 3-4% range forecast by the National Economic and Social Development Board.
Mr Mathee said the market has priced in the prospect of a Fed rate hike for a while, so capital outflows from Thai markets the next week should not be a big issue.
"We are not worried about outflows, because they started a few days ago and fund outflows are still less than inflows from earlier in the year," he said.
Net offshore inflows to the Thai bond market earlier this year accounted for around US$2 billion, Mr Mathee said.
Don Nakornthab, senior director in the macroeconomic and monetary policy department at the central bank, has said foreign investors have moved a high amount of short-term capital to the Thai bond market because they consider the baht a safe-haven currency, given its relative stability.
Mr Mathee said that even though the baht has weakened, the decline is unlikely to be severe because Thailand's external front remains strong, as shown by a high current account surplus and foreign reserves.
"These strong external factors will help ensure that the baht's value does not slip much further," he said.
If the Fed raises the policy rate this month, the possibility remains that the US central bank will continue to increase the rate in the second half of the year, reflecting a healthy US economy, Mr Mathee said.
"However, we still have to continue to monitor the US stimulus measures and the protectionist trade stances of President Donald Trump," he said.
US trade protectionism could affect Thailand, since exports make up 60-70% of the country's economic value.