BAY: Use fiscal tools for stimulus
Bank sees no policy rate cuts in 2019
Fiscal policy should play a larger role than monetary policy in lifting the country, given that the 2019 mid-year fiscal budget amounting to 90 billion baht is sufficient despite the delay in the new government's formation, says a senior official at Bank of Ayudhya (BAY).
Tak Bunnag, head of the global markets group, said fiscal policy has more room to encourage economic growth through the launch of stimulus packages than it did previously.
"The fiscal budget would be better in supporting economic momentum, while the Bank of Thailand could have only the one bullet of a rate cut and find a suitable time to use it," Mr Tak said.
BAY expects the Monetary Policy Committee to remain in neutral mode and keep its policy rate on hold at 1.75% throughout 2019, he said, adding that the rate-setters have limited policy space to manoeuvre.
There is still some room for monetary policy easing if needed, depending on the economy and the actions of other central banks, Mr Tak said.
BAY's forecast that the Bank of Thailand will hold is based on the fact that the central bank raised the policy rate just once during 2017-18, compared with nine hikes by the Fed.
BAY predicts that the Fed will cut its rate three times by 25 basis points each. The Fed is expected to start lowering the policy rate this month, then again in September and again at the start of next year.
The European Central Bank and central banks in Asia, including Malaysia, Indonesia, India and the Philippines, are expected to synchronise with the Fed.
On the domestic front, the new government should focus on boosting domestic demand amid external uncertainties dampening Thai exports, Mr Tak said.
Domestic investment, particularly in infrastructure megaprojects, and consumption should play a larger role in driving economy, he said, adding that both engines should balance the economic structure and reduce reliance on outbound shipments.
Infrastructure investment will also draw foreign direct investment, in addition to offshore capital inflows.
"Offshore funds are expected to park money in the Thai markets for the short term, but the country's assets are considered to be a safe haven amid global uncertainties," Mr Tak said.
LOCAL SHARES SMACKED
The Stock Exchange of Thailand (SET) index experienced the highest correction in Asia on Thursday as investors embarked on profit-taking by offloading stocks deemed overvalued.
Equities clustered in the energy and power sectors saw a sell-off, with BCPG down 8.6%, followed by GPSC (-3.5%), GULF (-2.3%) and EA (-2.3%).
Kavee Chukitkasem, deputy managing director of Kasikorn Securities, said Thursday's market correction occurred as investors reckoned that the prices of some equities were overvalued.
Besides lukewarm economic data from China and the US, concerns over lower-than-expected Thai GDP growth in the second quarter fanned negative sentiment among investors, Mr Kavee said.
The SET index closed at 1,724.37 points, down 14.14 points or 0.8%, in turnover worth 88.8 billion baht.
Institutional investors were net sellers of 1.75 billion baht, while brokerage firms offloaded shares worth a net 1.7 billion baht.
The plunge was attributed by some to the Office of the Ombudsman's plans to take legal action to require state ownership in power plants of least 51%, in line with the mandate of the new constitution.
Sombat Narawutthichai, secretary-general of the Investment Analysts Association, said local stocks are expected to move sideways this quarter, with the benchmark index projected at 1,750 points.