Finance chiefs unfazed by Fed hike

The US Federal Reserve raised its key policy rate by 25 basis points to a range of 0.75 per cent to 1 per cent on Wednesday, and has signalled more increases will follow as part of efforts to normalise monetary policy.
In response to the move, Finance Minister Apisak Tantivorawong yesterday said the ample liquidity in Thailand's financial markets would cushion the economy from any volatility in markets abroad.
Apisak’s optimism was echoed by permanent secretary for finance Somchai Sujjapongse, who said he was not worried about the likelihood of rising borrowing costs for the government, despite official plans to step up borrowing to help finance a raft of infrastructure projects this year and the next,
“The Public Debt Management Office had long anticipated the Fed’s move and made financial preparations accordingly,” he said. 
Somchai believes the US central bank will increase rates gradually in the face of expectations by some for slower growth in the US economy. 
“The US economy will expand by only 2 per cent this year, not 4 per cent as US President Donald Trump predicted,” he said.
The government plans to borrow about Bt 1 trillion for this year and the next as its annual budget deficit widens.
The budget deficit for the fiscal year to the end of September is estimated to come in at Bt580 billion; next year it is put at Bt 450 billion. Increased capital spending and lower tax revenue receipts are contributing to larger deficits. This is expected to force the government to increase so-called sin taxes in the coming months to cover part of revenue shortfall. 
However, the country is expected to run a large current accounts surplus, estimated at U$43 billion, due to rising export values and income from foreign tourists. 
Many research houses forecast export growth in the range of 0.8 per cent to 4 per cent. They expect imports to remain relatively low; this will feed into the mix contributing to the expected larger surpluses in trade and the current account.
Low imports mean private investment will remain sluggish, despite the increased spending on infrastructures, said Kobsidthi Silpachai, the head of capital markets research at Kasikornbank. 
The current account surplus will make baht steady and it will remain relatively strong this year, Kasikorn Research Centre forecasts. Kobsidthi expects a rate of about Bt35.70 to the US dollar, near the current level.
 In the debt markets, foreign investors hold about Bt70 billion of Bank of Thailand bonds and Bt 600 billion of government bonds. 
These combined bond holdings by foreign investors are small, at about 15 per cent of the total Thai bond market. This compares with foreign holdings of 32 per cent and 38 per cent in Malaysia and Indonesia, respectively. 
“So there is not much room for foreign investors to sell Thai bonds and get dollars out of the country,” said Kobsidthi 
In late trading yesterday, the currency strengthened to Bt 35.03 to the dollar, from Bt35.27 the previous day.
In the stock markets, the SET Index closed up 1.05 per cent at 1,557.05 points yesterday, chiming in with gains across the region.
“Investors feel relief after the Fed hike, believing that the next hikes will be moderate, in contrast to earlier fears,” Kobsidthi said. 
Gold traders responded to the Fed’s move by pushing prices for the metal to a high for the week.
Varut Rungkhum, research director |for YLG Bullion & Futures, said that the|global gold price climbed by US$20 an ounce yesterday morning after the announcement of the rate decision |following a two-day meeting of the Federal Open Market Committee.
The US dollar was cited as a support for the gains in the gold price, he said. 
Veera Vutthikongsirigool, first senior executive vice president for Krungthai Asset Management, said the rate rise came in as expected and two more increases to the policy rate are forecast for this year. 
The Thai policy rate is projected to remain unchanged at 1.5 per cent this year as the economy has been in recovery mode, he said.
Veera said the expected Fed rate increase prompted foreign capital to flow into the Thai bourse. However, there could be fluctuations this year.