Kasikorn Research Center (KResearch) expects the Federal Reserve to increase interest rates by 0.25% on Wednesday to tame inflation as the banking crisis in the US and Europe has eased somewhat.
The Federal Open Market Committee is projected to hike the rate by 25 basis points to 4.75-5.00% as US inflation remained elevated in February.
The central bank also wants to signal the liquidity crisis for mid-sized US banks should not cause widespread impacts to the overall economy, noted KResearch.
“If the Fed halts policy rate hikes, it could create more volatility in financial markets. This will increase the concern that the Fed sees this as a big problem,” said the research house. “Amid growing concerns about liquidity problems in the banking system, the Fed is likely to focus more on the stability of financial markets. As a result, the bank is expected to be less aggressive in rate hikes.”
After lifting the rate this month, the Fed is projected to freeze rates in later months even though inflationary pressure remains because higher rates would put the US banking sector on the verge of collapse, said KResearch.
Wilasinee Boonmasungsong, research director at Globlex Securities (GS), agreed the Fed’s decision is likely to be shaped by the possibility that more banks “could collapse if rates increase”.
The investment climate improved after UBS agreed to buy troubled Swiss rival Credit Suisse, while the Fed moved to inject funds into the financial system, she said.
“The collapse of banks indicates signs of economic recession. As a result, oil prices have continued to drop, which is pressuring the Stock Exchange of Thailand because energy stocks have a significant weight on the local index,” said Ms Wilasinee.
GS recommends investors focus on stocks expected to benefit from the domestic political situation, with politically-linked business groups advancing because of the dissolution of parliament. She said recommended stocks include T.K.S. Technologies, Sansiri, Praram 9 Hospital, SC Asset, Sino Thai Engineering and Construction, and STP&I.