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VIEW: DBS Outline Hawkish Risks To Baseline BOT View

THAILAND

DBS note that “the Bank of Thailand (BOT) is widely expected to raise its policy rate from a record-low of 0.5% during its August policy meeting. Thai policymakers have set themselves up for the start of the rate hiking cycle, following the dovish non-unanimous hold in the June meeting. The BOT has since then consistently signalled a gradual normalisation approach. This implies that the usual 25bps increase observed in the past has been fully priced into market expectations (also our baseline view). However, we think that there is a nonnegligible risk that the BOT might be debating bigger moves, especially given the context of multi-year high inflation and hawkish surprises by Asian central banks.” They note:

  • “Big unexpected 50bps increases were seen in 2005 to dampen accelerating inflation.”
  • “There is a case for large rate hikes now to firmly anchor price expectations amid high inflation.”
  • “Growth recovery from pandemic is on track amid tourism upturn, despite uncertain global landscape.”
  • “Households should withstand big interest rate rises, given larger fixed rate debt structure.”
  • On the other side, they caution that “Thai businesses are more exposed than households. About 60% of business loans are floating even though outstanding debt is slightly lower as a share of GDP. We think the BOT’s main concern would be on small and medium enterprises (SMEs). SMEs’ non-performing loans remained elevated, exceeding 7% as of Q122 (much higher than 6.3% in Q419, with little improvement compared to large businesses). Big interest rate adjustments, if adopted, might exacerbate this weakness, warranting targeted support.”
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DBS note that “the Bank of Thailand (BOT) is widely expected to raise its policy rate from a record-low of 0.5% during its August policy meeting. Thai policymakers have set themselves up for the start of the rate hiking cycle, following the dovish non-unanimous hold in the June meeting. The BOT has since then consistently signalled a gradual normalisation approach. This implies that the usual 25bps increase observed in the past has been fully priced into market expectations (also our baseline view). However, we think that there is a nonnegligible risk that the BOT might be debating bigger moves, especially given the context of multi-year high inflation and hawkish surprises by Asian central banks.” They note:

  • “Big unexpected 50bps increases were seen in 2005 to dampen accelerating inflation.”
  • “There is a case for large rate hikes now to firmly anchor price expectations amid high inflation.”
  • “Growth recovery from pandemic is on track amid tourism upturn, despite uncertain global landscape.”
  • “Households should withstand big interest rate rises, given larger fixed rate debt structure.”
  • On the other side, they caution that “Thai businesses are more exposed than households. About 60% of business loans are floating even though outstanding debt is slightly lower as a share of GDP. We think the BOT’s main concern would be on small and medium enterprises (SMEs). SMEs’ non-performing loans remained elevated, exceeding 7% as of Q122 (much higher than 6.3% in Q419, with little improvement compared to large businesses). Big interest rate adjustments, if adopted, might exacerbate this weakness, warranting targeted support.”