In line with our and consensus view, the Bank of Thailand (BoT) left its benchmark interest rate unchanged despite calls for a cut to contain the strength of the baht by the Ministry of Finance and business groups. The BoT maintained the current policy rate of 1.50%, which has remained in place since April 2015. The current policy rate is expected to support Thailand’s GDP recovery with inflation being weak. The high household debt has put a lid on the BoT’s ability to lower borrowing costs further.

A key concern is the strong baht, which has risen more than 8% against the USD this year and the most among Asian currencies. There are worries that the strong currency will weigh on exports, which we believe could materialise in 2018 if the baht continues to appreciate. For now, exports are performing well with August growth up 13.2% y/y.

We reiterate our view that the BoT will maintain its current policy rate throughout 2017. We project the baht to steadily appreciate against the MYR to average around 12.7145 in 2017 and 12.7838 in 2018. Against the USD, the baht is projected to average at 34.2 with our end-period target at 33.1 for 2017. We expect the currency to strengthen to average 33.5 with our end-period target of 32.8 for 2018.

• In line with our and consensus expectation, the Bank of Thailand (BoT) left its benchmark interest rate unchanged despite calls for a cut to contain the strength of the baht by the Finance Ministry and business groups. The BoT maintained the current policy rate of 1.50%, which has remained in place since April 2015.

• The current policy rate is expected to support the domestic economic recovery with inflation being weak. The high household debt has put a lid on the BoT’s ability to lower borrowing costs further.

• The central bank raised its 2017 GDP forecasts to 3.8% versus ours of 3.5% in 2017 and 3.7% for 2018. Growth is poised to be supported by strong exports. Meanwhile, exports feedback into domestic demand remains limited, largely supported by public investment which is the key driver of growth from the accelerated disbursement in previous months.

• A key concern is the strong baht, which has risen more than 8% against the USD this year and the most among Asian currencies. There are worries that the strong currency will weigh on exports, which we believe could materialise in 2018 if the baht continues to appreciate. For now, exports seem to perform well with August growth up 13.2% y/y.

• We reiterate our view that the BoT will maintain its current policy rate throughout 2017. Besides, we project the baht to steadily appreciate against the MYR to average around 12.7145 in 2017 and 12.7838 in 2018.

Source: AmInvest Research - 28 Sept 2017