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K bank capital market perspectives jan 24 ir
1. KBank Capital Market Perspectives Market Updates
Macro / FX / Rates
BoT’s January Inflation Report shows price concern remains
24 January 2011
Our views and thoughts
The key messages from the Bank of Thailand’s (BOT) January 2011 issue of the Inflation
Nalin Chutchotitham –
Report are:
Kasikornbank
nalinc@kasikornbank.com
- Negative impacts on the Thai economy in the second half of the year 2010
(local floods and slowdown in trading partners’ economies) had mostly lifted,
bringing the latest forecast of annual GDP growth in 2010 to 8.0%.
- Continued economic growth in trading partners’ economies would help
support Thai exports going forward while private consumption and
investment would be key drivers of economic expansion this year.
- Although growth forecast for the year is unchanged from the October issue
(3.0-5.0%), assumptions involved had changed.
- Rising prices from both expanding domestic demand and external forces
(rising commodity prices and supply-side shocks to agriculture products due
to natural disasters) would remain a key concern for monetary policy in the
year 2011.
Comparing the two most recent Inflation Reports, the central bank seems to remain rather
comfortable with the pace of economic growth both locally and abroad, although it continued
to cite weak growth in the U.S. and fiscal challenges in Europe. Trade balance and current
account surpluses’ forecast are revised upwards, mainly attributable to stronger recovery in
trading partners’ economies. However, the surpluses are likely to be lower than in the year
2010 anyhow because of imports growth.
We expect that the BoT would front-load much of their policy rate hikes this year during the
first half of the year. In particular, we still expect another two hikes to come durinng the MPC
th th
meetings on March 9 and April 20 . This would bring the repo rate to 2.75% from the current
2.25%.
Should inflation rates start to decline or stabilize, the BoT may hold off rate hikes in the next
few MPC meetings. However, it is likely that the BoT would stay on the cautious side and
raise policy rate gradually until certain that they have inflation under control. In other words,
the repo rate may stay at 2.75% during the first half but could continue to rise further to 3.00 –
3.25% before by year-end.
Table 1. Bank of Thailand’s economic forecast as of January 2011 (unit : % YoY or otherwise indicated)
2009 2010 2011 2012
as of Jan Oct Jan
GDP -2.7 8.0* 3.0 – 5.0 3.0 – 5.0 3.0 – 5.0
Core inflation 0.3 1.0 2.0 – 3.0 2.0 – 3.0 1.5 – 2.5
Headline inflation -0.9 3.3 2.5 – 4.5 3.0 – 5.0 2.0 – 4.0
Export of goods (f.o.b) -14.0 28.5 11.0 – 14.0 11.0 – 14.0 11.0 – 14.0
Imports of goods (c.i.f) -25.2 36.8 15.0 – 18.0 13.5 – 16.5 13.0 – 16.0
Trade balance ($ bn) 19.4 14.0 8.0 – 11.0 4.0 – 7.0 4.5 – 7.5
Current account ($ bn) 21.9 14.8 10.0 – 13.0 5.0 – 8.0 6.5 – 9.5
Source: Bank of Thailand, * indicates forecast
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2. Key Assumptions Changes compared to October forecasts
Revised up slightly in 2011 mainly attributable to the improved prospects of the US economy, with a
Demand for Thai exports
strong momentum sustaining well into 2012.
Fed funds rate Anticipated to rise in 2011 Q3, unchanged from the previous assumption
Likely to appreciate more against the US dollar throughout the projection period in line with latest data
Regional currencies
and strong growth prospects in Asia
Revised upwards, mostly because of the reclassification of some transfer payments into consumption
spending. Both consumption and investment expenditures in fiscal year 2012 will then rise from the
Direct government spending FY2011
preceding fiscal year following the budget expansion.
Raised throughout the forecast period, in tandem with upward demand pressure coming from the
unusually cold weather and the rising global demand. Dubai oil price will average at 91.3 and 98.1 US
Dubai oil price dollars per barrel in 2011 and 2012, respectively.
Prices will rise gradually over the period ahead, with pressure from both a negative supply shock due to
last year’s flood and firming domestic demand. Climate factors and natural disasters also lead to a
substantial upward revision in non-fuel commodity prices.
Agricultural prices
In addition, the continued capital inflows into commodity markets also contribute to the upward pressure.
Revised up to 215 baht in 2011, before rising to 226 baht in 2012, in line with the economic growth and
Daily minimum wage higher inflation going forward.
Source: Bank of Thailand
BOT’s press release on January’s Inflation Report http://www.bot.or.th/Thai/PressAndSpeeches/Press/News2554/n0254e.pdf
Download January’s Inflation Report http://www.bot.or.th/English/MonetaryPolicy/Inflation/Pages/index.aspx
BoT’s core inflation forecast Real interest rates (deposit and lending rates)
%
10
8
6
4
2
0
-2
-4
-6
02 03 04 05 06 07 08 09 10 11
Real policy rate real 12m deposit rate real MLR
Source: Bank of Thailand Source: Bloomberg, KBank
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4. Disclaimer
For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or
sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we
believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained
herein. Further information on the securities referred to herein may be obtained upon request.
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