The Federal Reserve's hawkish statement about "higher for longer" interest rates could keep the Thai bourse bearish as high rates dampen global economic prospects, with the Stock Exchange of Thailand (SET) continuing to register fund outflows.
Although the US central bank resolved to maintain the interest rate at 5.25-5.50% as widely expected, Asian stock markets fell across the board, tracking losses on Wall Street, as the Fed indicated it could hike interest rates again this year and keep them elevated longer than expected to curb inflation, aiming for a target of 2%.
The Thai stock market slid in early morning trade, then edged up later in the day, moving in a tight range with low trading as investors are concerned high global interest rates will delay an economic recovery.
The Federal Open Market Committee projects two rate cuts in 2024, two fewer than its forecast in June and slower than the market forecast it would start cutting rates -- by mid-2024.
The Fed's dot plot suggests it will raise the interest rate one more time to a median of 5.6% by the end of 2023, then fall to 5.1% in 2024, which is up from the June estimate of 4.6%. Fed Watch Tool expects the regulator to hold the interest rate at 5.5% until mid-2024.
The Fed raised its US GDP estimate this year to 2.1%, a notable upgrade from 1% projected in June, with expansion of 1.5% next year and 1.8% each in 2025 and 2026.
"The Fed may keep the interest rate high for the long term, which could cause a slowdown in economic activity and a surge in debt. The US national debt just reached a historical high of $33 trillion," Asia Plus Securities said in a research note. "The US interest rate is stabilising, but economic figures should be watched closely. As long as the economy is strong, the Fed may keep the interest rate high longer, which will cause debt to rise."
Nuttawut Wongyaowarak, a strategist at KTX Research, a unit of Krungthai Xspring Securities, said the Fed's updated projection for US economic growth could prompt capital to flow out of emerging Asian stock markets, heading to the US.
"The Thai stock market is battling negative factors including weak exports, high oil prices and a sharp depreciation of the baht," he said.
The Thai GDP estimate could potentially be downgraded, while a higher debt-to-GDP ratio might affect Thailand's credit rating in 2024, said Mr Nuttawut.
"Funds may continue to flow out of the Thai bourse, and I think the SET index is likely to fall below the key resistance level of 1,500 points," he said.