The hawkish stance of the Federal Reserve on maintaining “higher for longer” interest rates is projected to keep the Thai stock market in bearish territory. This comes as elevated charges pose a threat to international economic recovery, resulting in constant fund outflows from the Stock Exchange of Thailand (SET).
Despite the expected decision by the US central bank to retain the interest rate at 5.25 to five.50%, Asian inventory markets witnessed a downturn, mirroring Wall Street’s losses. The Fed’s indications of a attainable interest rate hike this year, coupled with a longer-than-expected interval of high charges to handle inflation, has led to unease amongst investors. The bank’s said objective is to achieve an inflation goal of 2%.
Trading on the Thai stock market began on a low note but saw a marginal increase later in the day as the market fluctuated inside a slim vary. Investors stay apprehensive about the influence of high global rates of interest on economic restoration.
The Federal Open Market Committee‘s forecasts recommend two rate cuts subsequent 12 months, which is two lower than its June forecast and slower than the market’s prediction of a rate cut beginning by mid-2024.
According to the Fed’s dot plot, there might be one other increase within the interest rate to a median of 5.6% by the end of this 12 months, adopted by a drop to five.1% in the subsequent 12 months. This is a major improve from the June estimate of four.6%. The Fed Watch Tool anticipates the regulator to carry the interest rate at 5.5% till mid-2024.
The US GDP estimate for this 12 months has been elevated by the Fed to 2.1%, a considerable upgrade from the 1% projected in June. It anticipates an enlargement of 1.5% subsequent year, followed by 1.8% each in 2025 and 2026.
Asia Plus Securities, in a analysis observe, expressed considerations in regards to the Fed’s potential long-term high-interest price coverage. It warned that such a stance could result in a slowdown in economic activities and a surge in debt, with the US national debt already hitting a historic excessive of US$33 trillion.
As the US interest rate stabilises, the energy of the financial system might be closely monitored. If it remains strong, the Fed could extend the interval of excessive rates of interest, resulting in a rise in debt.
Nuttawut Wongyaowarak, a strategist at KTX Research, a part of Krungthai Xspring Securities, expressed considerations that the Fed’s revised projection for US financial development could set off a capital outflow from rising Asian inventory markets to the US. He cited weak exports, high oil prices, and a significant depreciation of the baht as contributing to the Thai inventory market’s struggles.
He additional speculated that the Thai GDP estimate might face a downgrade, whereas an amplified debt-to-GDP ratio may impact Thailand‘s credit standing in the subsequent yr.
“Funds might proceed to flow out of the Thai bourse, and I assume the SET index is prone to fall below the key resistance level of 1,500 points.”
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