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Free AccessPM Srettha Sees Scope For 25bps BoT Cut, USD/THB Up Modestly
USD/THB has firmed a little in recent dealings, the pair last near 35.77, against earlier lows of 35.73. Headlines have crossed from Thailand PM Srettha stating that the policy rate can be cut by 25bps. He added that there is space for addition policy cuts (BBG). Such cuts are unlikely to stoke inflation and that the country is facing deflation (RTRS). There hans't been much USD buying follow through though.
- This comes ahead of the BoT policy meeting tomorrow. Our full preview is here. The base case for us and the market is no change.
- As we noted in the preview: The government has called on it to cut rates given lacklustre growth but BoT will ignore that while it and the IMF call for structural reform. The central bank is likely to be cautious while the timing and impact of the government’s digital wallet scheme is uncertain. It won’t want to risk easing monetary policy simultaneously with fiscal. In its statement watch any downward revisions to its growth or inflation projections, whether the vote is still unanimous and changes in tone.
- PM Srettha wants fiscal and monetary policy working in unison (see this BBG link).
- For USD/THB we would assume a dovish BoT shift would be bullish all else equal, particularly given the Fed's push back on March rate cut expectations recently. The chart below plots USD/THB against the 2yr government US-TH government bond yield spread.
- Topside levels in USD/THB are 35.88 (late Jan highs). Beyond that is mid Nov highs around 36.15. On the downside, note the 20-day EMA at 35.43.
Fig 1: USD/THB Versus 2yr Government Bond Yield Differential With The US
Source: MNI - Market News/Bloomberg
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