A modest bump in the prime lending rate is expected this year, assuming the Bank of Thailand raises the policy rate one more time in 2019, says Krungthai Macro Research, the research house of Krungthai Bank (KTB).
Based on the central bank's study that found the minimum lending rate (MLR) will be raised by 33-48 basis points for every one percentage point increase in the policy rate, the banking industry's prime lending rate will be hiked by 0.16-0.24 percentage points if the one-day repurchase rate is raised by a quarter-point this year, said Phacharaphot Nuntramas, senior vice-president for global business development and strategy at Krungthai Macro Research.
"Even if the increase of 0.16-0.24 percentage points in the MLR this year takes hold, it won't significantly add financial costs to corporate firms and private investment. Their financial costs could hike by 1,600 baht [based on a 16-basis point hike] per year for 1 million baht worth of corporate loans," he said.
The MLR of the country's four largest banks is in the range of 6.025-6.275% per year. The big four players are Bangkok Bank, Siam Commercial Bank, KTB and Kasikornbank.
The research house forecast the central bank's rate-setting committee will further increase the policy rate by 0.25 percentage points in the third quarter this year to 2% after it raised the rate for the first time in seven years by 25 basis points to 1.75% in December last year.
The Monetary Policy Committee is expected to raise the policy rate to 3% around 2020 to 2021, he said.
Krungthai Macro Research is assuming economic growth of 4.1% this year for the 25-basis point hike forecast.
Earlier, the research house predicted the economy would expand by 4.3% in 2019. Domestic investment from both public and private sectors will be the main growth drivers.
Mr Phacharaphot said public investment growth would be attributed to mega-infrastructure investment and the Eastern Economic Corridor, and state investment would prompt private investment.
It predicted 2019 public investment will expand 7.2% and private investment 5.5%, with domestic consumption at 4.3%.
Given a general election taking place in the first half of the year and the new government being installed in the second half, investor confidence should grow, bolstering private investment from the second half of this year.
However, export and tourism growth is expected to decelerate this year because of the global trade spate and the slowdown in Chinese arrivals.
The US-China trade dispute would be a drag for this year's growth amid higher uncertainties, he said.