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Bangkok Post
10 hours ago
- Business
- Bangkok Post
Navigating twin crises and tightened monetary policy
Financial markets in Thailand are confronting an unprecedented twin crisis, as political uncertainty from the audio clip scandal converges with escalating Middle East tensions that have rattled global capital markets. This dual crisis severely affected Thailand's economy, with the Thai stock index plunging to its lowest point in five years, declining nearly 24% year-to-date to become the world's worst-performing equity market. Thailand's political crisis stems from the withdrawal of the Bhumjaithai Party and its 69 MPs from the government coalition, creating political uncertainty. As of Friday, political pressure had pushed the SET index down, testing the critical support level of 1,085 points. Our analysis identifies three main scenarios with varying economic implications. The first scenario involves immediate parliamentary dissolution, though we reduced the probability of this outcome as the government is likely to retain its majority. This scenario would result in GDP contracting by 0.5 percentage points due to disruption of the budget process -- both fiscal 2025 disbursement and passage of the 2026 budget. The second scenario, which we consider the base case with increased probability, involves a cabinet reshuffle followed by dissolution after the fiscal 2026 budget is passed, with the economic impact consisting of GDP shrinking by 0.3 percentage points. The third scenario considers resignation or removal of the prime minister due to governance issues, carrying a moderate probability and resulting in a growth slowdown of 0.3-0.5 percentage points. Under this scenario, the Bank of Thailand may need to accelerate interest rate cuts by 50 to 75 basis points to support the economy amid mounting pressure from anti-government demonstrations and various legal developments that could escalate the situation. The US strike on Iran's nuclear facilities on June 22 significantly altered the Middle East conflict landscape. Brent crude initially surged 5.7% to $81.40 per barrel before falling below $70 as immediate supply disruption fears subsided. The Israel-Iran conflict began to ease following a ceasefire announcement with US mediation. Analysts suggest Iran's military effectiveness may now be diminished, while the fragile domestic economy is experiencing inflation near 40%. The US is reportedly preparing to open negotiations with Iran next week, which requires monitoring. MIDEAST SCENARIOS We forecast the probability of three Middle East scenarios. The base scenario, with 40% probability, anticipates temporary oil price increases before a decline, resulting in Thai economic growth of 1.4% and inflation of 0.5%. The adverse scenario, also with 40% probability, involves oil prices sustained above $85 per barrel, leading to growth slowing to 1.2%, while inflation increases to 0.8%. The crisis scenario, with a 20% probability, assumes Iran decides to close the Strait of Hormuz, potentially pushing oil prices to $130 or $140, resulting in economic growth of only 1% and inflation reaching 1%. In Thailand, the central bank's Monetary Policy Committee (MPC) voted 6-1 this week to maintain the policy rate at 1.75%, with one member favouring a reduction to 1.50% to support the slowing economy. According to the MPC, Thailand's economy in the first half of 2025 will expand better than projected, driven by exports, particularly to the US. As a consequence, the regulator revised its full-year GDP growth forecast to 2.3% from 2.0% earlier. However, the central bank believes export momentum is temporary, with heavy frontloading of shipments to the US to avoid higher tariffs. The economy faces risks in the second half from US tariffs, weak domestic demand and declining consumption amid reduced household income and confidence. The 2026 economic growth forecast was downgraded to 1.7% from 1.8%. We believe Thailand's economy will slow significantly in the second half, risking a technical recession. Thailand faces substantial risk of higher US import tariffs compared with other trading partners. Government budget disbursement remains below target, and despite expectations of acceleration in the second half, including 115 billion baht in stimulus projects, disbursement is expected to remain delayed due to uncertainty about government stability, preventing the public sector from fully driving the economy at a time of weak private demand. Contracting credit will further pressure domestic demand. With inflation clearly below the central bank's 1-3% target range and with no signs of demand-side inflationary pressure, there is room for further monetary policy relaxation. We maintain our view that the central bank should cut the policy rate at least twice more this year to 1.25% to alleviate household and business interest burdens, reduce tight financial conditions, and support a stable demand recovery. If the regulator doesn't cut rates in the third quarter, we see delays potentially weakening the economy, ultimately requiring more aggressive rate cuts later and further increasing risks to future economic stability. In terms of investment strategy, the SET is expected to remain volatile amid negative domestic and external factors as outlined above. However, we believe the SET index below 1,100 points, representing a 2025 price/earnings ratio of less than 12 times, is appropriate for medium- to long-term investment through gradual accumulation. Our investment strategy remains "selective buy" across four key areas. First, we recommend defensive stocks with low volatility that are expected to resist external market turbulence, specifically DIF, BDMS and BCH. Second, quality dividend stocks from the SET50 with SETESG ratings of A or higher should be considered to generate short-term cash flow, as these companies are expected to pay interim dividends from first-half 2025 profits with yields exceeding 2%, particularly ADVANC, BBL and PTT. Third, earnings-play stocks with strong profit momentum deserve attention, as we expect normalised second-quarter 2025 profits to grow, with ADVANC, CPALL and BTG leading this category. Finally, for investors with a high risk tolerance seeking trading opportunities amid the Middle East conflict, we recommend stocks benefiting from rising oil prices, specifically PTT and PTTEP.
The Sun
a day ago
- Business
- The Sun
Asian markets cautious as Trump tariff deadline, Fed uncertainty loom
MOST Asian currencies held steady on Friday as a shaky dollar and concerns over the Federal Reserve's independence kept investors cautious, while stocks traded mixed ahead of looming trade deadlines tied to U.S. President Donald Trump's tariffs. The Philippines' stocks rose more than 1% to hit a two-week high, while Singapore's benchmark index gained 0.6%. On the other end, South Korean shares fell 1.2% on profit-booking following a post-election rally. The benchmark, however, is up nearly 13% this month, its best monthly gain since November 2020. Thai shares dropped 1.5% on the day but set for their best week in eight. The Bank of Thailand left interest rates unchanged on Wednesday, mirroring other central banks in the region, taking a wait-and-watch approach in their recent meetings. Investor focus has now shifted to how trade negotiations will progress ahead of the July 9 deadline for Trump's reciprocal tariffs. Thailand was slapped with a 36% U.S. tariff on its exports and was among six of the nine Southeast Asian countries named by Trump that were hit with larger-than-expected tariffs ranging from 32% to 49%. It is set to hold trade talks with Washington next week. The dollar was largely subdued as markets priced in deeper U.S. rate cuts, with speculation that Trump could name a more dovish successor to Fed Chair Jerome Powell, adding to expectations of policy easing. Investors also looked ahead to the U.S. Personal Consumption Expenditures (PCE) index data - the Fed's preferred inflation gauge - due later in the day. 'Combination of the 'sell USD' trade, consistent stronger Chinese yuan fix seen over the last few sessions and geopolitical continue to fuel the rally in Asia excluding Japan,' OCBC currency strategist Christopher Wong said. The Taiwan dollar outperformed regional peers, rising as much as 0.7% to its highest level since mid-April 2022, defying the broader market trend. Traders said the local currency's rise was being driven by expectations of the Fed's interest rate cuts, the general global weakness of the greenback and the continued flood of foreign capital into the island. 'Foreign investors are dumping U.S. dollars aggressively, but our currency should be Asia's strongest,' a Taiwan-based bank trader said. Elsewhere, the Thai baht slipped 0.1%, while the South Korean won fell 0.2%, though it remained on course for its strongest week since June 2. Markets in Indonesia and Malaysia were closed for public holidays. HIGHLIGHTS: ** Vietnam approves plans for international financial centre amid US trade pressure ** Philippines posts $3.3 billion trade deficit in May Asia stock indexes and currencies at 0415 GMT COUNTRY FX RIC FX DAILY FX YTD INDEX STOCKS STOCKS % % DAILY % YTD % Japan -0.03 +8.84 1.55 0.76 China -0.05 +1.79 -0.21 2.67 India +0.20 +0.09 -0.09 7.95 Indonesia - -0.67 - -2.58 Malaysia - +5.73 - -6.95 Philippines +0.10 +2.77 1.13 -1.94 -0.23 +8.58 -1.14 26.88 Singapore -0.05 +7.12 0.64 4.65 Taiwan +0.64 +13.12 -0.34 -2.68 Thailand -0.11 +5.46 -1.46 -22.11
Bangkok Post
a day ago
- Business
- Bangkok Post
Bank of Thailand vows to step in if baht moves are unhinged
Thailand's central bank is ready to tackle excessive baht volatility by managing any moves 'unhinged' from its fundamentals, a deputy governor said, amid calls from local businesses to temper the currency's rally to help exports and tourism. 'We do look at the baht closely and try not to let it be too volatile,' Piti Disyatat said in an interview late on Thursday. 'If it's driven by non-fundamental reasons, portfolio perceptions, sentiment that's unhinged with macro fundamentals then we will reduce the volatility.' The baht has surged about 5% this year, prompting some ministers and business groups to call for the central bank to weaken the currency to boost exports and tourism — the nation's biggest drivers of growth. The baht fell 0.3% to 32.57 per dollar on Friday, underperforming Asian peers. Mr Piti's comments also come at a time when the nation is in trade talks with the US to lower a 36% tariff rate on its goods. President Donald Trump has long accused Asian countries for maintaining undervalued exchange rates that helped them amass trade surpluses with the US. The Bank of Thailand (BoT) doesn't target any particular level or direction for the baht and its gain this year is in line with regional peers, Mr Piti said. The currency is little changed on a trade-weighted exchange-rate basis and hasn't hurt the country's export competitiveness, he said. Thailand's exchange rate policy complies with the International Monetary Fund code when it comes to managing volatility so it shouldn't become an issue, Mr Piti said, when asked if tariff talks with the Trump administration included exchange rate. While foreign-exchange intervention was one instrument at the central bank's disposal to maintain stability, the BoT mostly allows the flexible exchange regime to absorb shocks, Mr Piti said, adding 'we manage it only when we really have to'. The baht's move in tandem with gold prices is not deemed as a fundamental reason, though it amplifies the currency's movements, he said. A jump in Thailand's foreign reserves to a record $259.9 billion this month reflects valuation adjustments in its asset holdings, rather than the central bank mopping up additional dollars, Mr Piti said.
Business Times
a day ago
- Business
- Business Times
Thailand central bank vows to step in if baht moves are unhinged
[BANGKOK] Thailand's central bank is ready to tackle excessive baht volatility by managing any moves 'unhinged' from its fundamentals, a deputy governor said, amid calls from local businesses to temper the currency's rally to help exports and tourism. 'We do look at the baht closely and try not to let it be too volatile,' Piti Disyatat said in an interview late on Thursday (Jun 26). 'If it's driven by non-fundamental reasons, portfolio perceptions, sentiment that's unhinged with macro fundamentals then we will reduce the volatility.' The Thai baht has surged about 5 per cent this year, prompting some ministers and business groups to call for the central bank to weaken the currency to boost exports and tourism – the nation's biggest drivers of growth. Piti's comments also come at a time when the nation is in trade talks with the US to lower a 36 per cent tariff rate on its goods. President Donald Trump has long accused Asian countries for maintaining undervalued exchange rates that helped them amass trade surpluses with the US. The Bank of Thailand doesn't target any particular level or direction for the baht and its gain this year is in line with regional peers, Pita said. The currency is little changed on a trade-weighted exchange-rate basis and hasn't hurt the country's export competitiveness, he said. Thailand's exchange rate policy complies with the International Monetary Fund code when it comes to managing volatility so it shouldn't become an issue, Piti said, when asked if tariff talks with the Trump administration included exchange rate. While foreign-exchange intervention was one instrument at the central bank's disposal to maintain stability, BOT mostly allows the flexible exchange regime to absorb shocks, Piti said, adding 'we manage it only when we really have to.' The baht's move in tandem with gold prices is not deemed as a fundamental reason, though it amplifies the currency's movements, he said. A jump in Thailand's foreign reserves to a record US$259.9 billion this month reflects valuation adjustments in its asset holdings, rather than the central bank mopping up additional dollars, Piti said. BLOOMBERG
New Straits Times
a day ago
- Business
- New Straits Times
Asian markets cautious as Trump's tariff deadline, Fed uncertainty weigh
NEW YORK: Most Asian currencies held steady on Friday as a shaky dollar and concerns over the Federal Reserve's independence kept investors cautious, while stocks traded mixed ahead of looming trade deadlines tied to US President Donald Trump's tariffs. The Philippines' stocks rose more than 1 per cent to hit a two-week high, while Singapore's benchmark index gained 0.6 per cent. On the other end, South Korean shares fell 1.2 per cent on profit-booking following a post-election rally. The benchmark, however, is up nearly 13 per cent this month, its best monthly gain since November 2020. Thai shares dropped 1.5 per cent on the day but set for their best week in eight. The Bank of Thailand left interest rates unchanged on Wednesday, mirroring other central banks in the region, taking a wait-and-watch approach in their recent meetings. Investor focus has now shifted to how trade negotiations will progress ahead of the July 9 deadline for Trump's reciprocal tariffs. Thailand was slapped with a 36 per cent US tariff on its exports and was among six of the nine Southeast Asian countries named by Trump that were hit with larger-than-expected tariffs ranging from 32 per cent to 49 per cent. It is set to hold trade talks with Washington next week. The dollar was largely subdued as markets priced in deeper US rate cuts, with speculation that Trump could name a more dovish successor to Fed Chair Jerome Powell, adding to expectations of policy easing. Investors also looked ahead to the US Personal Consumption Expenditures (PCE) index data — the Fed's preferred inflation gauge — due later in the day. "Combination of the 'sell USD' trade, consistent stronger Chinese yuan fix seen over the last few sessions and geopolitical de-escalation... can continue to fuel the rally in Asia excluding Japan," OCBC currency strategist Christopher Wong said. The Taiwan dollar outperformed regional peers, rising as much as 0.7 per cent to its highest level since mid-April 2022, defying the broader market trend. Traders said the local currency's rise was being driven by expectations of the Fed's interest rate cuts, the general global weakness of the greenback and the continued flood of foreign capital into the island. "Foreign investors are dumping US dollars aggressively, but our currency should be Asia's strongest," a Taiwan-based bank trader said. Elsewhere, the Thai baht slipped 0.1 per cent, while the South Korean won fell 0.2 per cent, though it remained on course for its strongest week since June 2. Markets in Indonesia and Malaysia were closed for public holidays.
