BoT forecast to take cues from Fed cuts

BoT forecast to take cues from Fed cuts

Swiss bank sees Thai officials loosening

Swiss private bank Lombard Odier forecasts the Bank of Thailand to follow in the footsteps of its US counterpart, which is likely to cut its benchmark rate in the second half.

The US Federal Reserve will take the lead in easing monetary policy and other central banks including Thailand's will follow suit, said Homin Lee, head of portfolio solutions for Asia and Asian macro strategy.

The Fed is expected to cut its key rate twice this year, by 25 basis points each time, Mr Lee said, with the first cut by September and the other by December.

With the global economy late in the growth cycle and the US and China exchanging trade blows, easing monetary policy led by the Fed is needed to support global economy, he said.

US policy rate cuts would weaken the dollar against other currencies like the baht.

Lombard Odier predicts the local currency to keep rising to a range of 29.59-29.89 against the greenback by the end of 2019.

The baht is the top-performing currency in Asia, gaining about 6.5% this year to hit a fresh six-year high of 32.52 to the dollar recently. The currency strengthened 2.5% in the three months to June, the fastest pace among emerging Asian peers.

Mr Lee said the stronger baht doesn't necessarily pose threats to the Thai economy, as seen by the fact that several countries with firmer currencies against the dollar have managed robust economic growth.

The stronger baht will boost Thailand's purchasing power and open more opportunities for domestic investment, particularly in infrastructure megaprojects in the Eastern Economic Corridor, he said.

Such a result would provide an engine for the Thai economy in addition to exports, Mr Lee said.

With trade diversion, there are many new potential export areas for Thailand, especially in mid-supply chains, he said.

Don Nakornthab, the Bank of Thailand's senior director of the economic and policy department, said the Monetary Policy Committee (MPC) kept the policy rate unchanged at 1.75% when it last met because the latest GDP growth forecast of 3.3% for this year is considered an acceptable level.

"The MPC does not close the door to policy rate cuts amid the slowing economy and flat export growth prospects," Mr Don said. "The policy rate's moves largely hinge on data dependence. However, the chance of a rate hike is slim."

Lombard Odier is not alone in forecasting Thai rate cuts. CIMB Thai Bank recently predicted that the MPC would cut the rate twice by the first half of next year in a bid to boost economic growth and curb hot-money inflows.

Stephane Monier, chief investment officer of Lombard Odier, said the Swiss bank is evenly allocating the portfolio of private banking customers in equity and fixed income at 40% each, with the remaining 20% in alternative assets such as gold and Japanese yen.

The portfolio allocation is based on the assumption that trade talks between the US and China will conclude by next year.

An easing monetary climate led by the Fed would benefit both equity and bond markets in emerging economies like Thailand, Mr Monier said.

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