KBank Capital Markets perspectives aug 24 mpc
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KBank Capital Markets perspectives aug 24 mpc

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  • 1. KBank Capital Market Perspectives Market Updates Macro / FX / Rates Less hawkish, but not dovish 24 August 2011 Overview: Nalin Chutchotitham - Kasikornbank - The Bank of Thailand (BOT) raised its policy rate by another 25bp today to 3.50%. nalin.c@kasikornbank.com This was an expected outcome by the market today as indicated by the short-dated swap rates that picked up to above 3.25%. Nevertheless, the decision was based on a 5-2 vote. This is the 6th time the MPC had raised policy rate this year and today’s decision was in line with the July policy statement which stated that inflationary risk remained significant in the near-term. - Overall, the MPC statement showed a less hawkish stance on the back of weaker- than-expected data from the major economies but it did not struck us as being dovish at all. In particular, MPC stated that “Thai economy retained its growth momentum but with heightened risks to inflation, together with a sub-normal policy rate. The MPC deemed it appropriate to continue policy rate normalization to contain inflationary pressure.” Hence, we still see a higher probability of the year- end policy rate being 3.75% - 4.00%. In any case, our current forecast remained at 4.00% but we would be assessing our target against new data that comes in. - The BoT retained a relatively positive view about Asian economies compared to several research houses that are revising their forecasts of Asian growth down due to concerns of negative impact on the region’s exports. Hence, it seems to us that the BoT remained focused on near-term inflation pressure and is adopting a wait- and-see stance on the development of global economic trend. Below is our interpretation of the MPC statement: Global economy – There is significant slowdown in the major economies but MPC expects that Asian economies are in good position to withstand the negative impacts. Thai economy – risks to growth had increased but that domestic demand indicators continued to show that the Thai economy would remain resilient while the exporting sector had proven to be flexible in the past few quarters. At the same time, the fiscal position and the financial sector are in good health to promote and sustain growth going forward. Inflation pressure – global commodity and energy prices had declined but the MPC still see volatility going forward. Inflation expectation at home remained a concern while domestic demand may sustain price pressure even under global economic slowdown. Local interest rates are deemed too low for current economic conditions.MPC had raised policy rate by 1.50% this year alone The market priced in policy rate hike today % % THB fixing rates and IRS 5.0 4.00 4.0 3.75 3.0 3.50 2.0 3.25 1.0 3.00 0.0 2.75 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 1Wk 1M 2M 3M 6M 9M 1Y IRS 1Y IRS 2Y Repo rate 12m deposit rate MLR - 4% 24-Aug 5-day ago 1-m agoSource: Bloomberg, KBank Source: Bloomberg, KBank 11 1
  • 2. GDP Growth %YoY and %QoQ Thailand’s policy rate is catching up with the regional’s % % 15 9 8.00 12.0 current 8 9.2 6.56 6.75 7 end 2011 (consensus) 10 5.9 6.6 6 end 2012 (consensus) 4.50 4.75 5 3.7 3.8 3.2 5 2.7 2.1 2.9 2.6 3.50 1.3 2.0 4 3.25 0.2 3.00 3 1.88 0 -0.4 -0.2 2 -2.4 -2.8 1 -5 -5.2 0 GDP yoy GDPsa qoq Australia Philippines Taiwan South Korea Thailand China Indonesia India Malaysia -7.0 -10 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11Source: NESDB, KBank Source: Bloomberg, KBank Commodity prices had declined but food prices stayedThailand’s headline and core inflation rates elevated 500 260 10% 240 8% 450 220 6% 400 200 4% 350 180 2% 160 0% 300 140 -2% 250 120 -4% 200 100 -6% 05 06 07 08 09 10 11 01 02 03 04 05 06 07 08 09 10 11 CPI yoy Core CPI yoy Reuters/Jefferies Comdty index (LHS) UN FAO Food price index (RHS)Source: Bloomberg, KBank Source: Bloomberg, KBankOECD leading indicator showed a decelerating trend, U.S. activity indicators point towards contraction in U.S.boding poorly for Thai exports production and overall slowdown in the economy 1.0 = Jan 2005 15% 15% 6 10% 10% 4 5% 2 5% 0 0% 0% -2 -5% -4 -10% -5% -6 -8 Dallas Fed Empire State -15% -10% 00 01 02 03 04 05 06 07 08 09 10 11 -10 Richmond Fed Chicago Fed -12 OECD lead indicator, % YoY, left axis TH GDP, % YoY, right axis Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11Source: Bloomberg, KBank Source: Bloomberg, KBank 22 2
  • 3. Bond yields collapsed on inflows and weaker growth 2-10 spread and foreign holding of Thai debt securitiesoutlook % Government bond yield change bp Bt bn Foreign holding in Thai GBs & fixed income Jan 2010 = 0 bps 4.00 10 450 0 400 3.90 0 350 50 3.80 -10 300 3.70 -20 250 100 3.60 -30 200 3.50 -40 150 150 3.40 -50 100 3.30 -60 50 200 3.20 -70 0 -50 250 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 12Y 14Y 15Y 16Y 20Y Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Yield Change from 1m ago (right axis) 24-Aug-11 Holding (bn baht, left axis) 2-10 spread (inverted, right-axis)Source: Bloomberg, KBank Source: ThaiBMA, KBank MPC Decision on 13th July 2011 MPC Decision on 24th August 2011 Mr. Paiboon Kittisrikangwan, Assistant Governor, Bank of Thailand, announces the outcome of the Monetary Policy Committee Mr. Paiboon Kittisrikangwan, Assistant Governor, Bank of (MPC) meeting today, as follows. Thailand, announces the outcome of the Monetary Policy Committee (MPC) meeting today, as follows. In the first half of the year, advanced economies expanded more slowly than expected. The US economy was particularly affected by The MPC assessed that the risks to economic growth of the the surge in oil prices and supply disruption in the automobile sector advanced economies had increased as the US economic growth continued to stemming from the Japan crisis which should abate in the latter half of the slow to a rate lower than expected. Core member economies in the euro area year. The Japanese economy has been recovering faster than expected. began to slow somewhat. Meanwhile, Asia is expected to be able to The euro area continued to expand from growth in the core member withstand some of the impact from the global economic slowdown due to countries while sovereign debt problems remained a key risk to the the resiliency of its domestic demand and exports as well as remaining economy. Meanwhile, the Asian economy continued to grow from both monetary and fiscal policy space to stimulate the economies. internal demand and exports. However, going forward, growth may slow slightly due to tightened monetary policy to contain inflation in many The MPC agreed that the slowdown in advanced economies countries. would partially weigh on Thai exports. However, expanding intra- regional trade in tandem with the continued growth of domestic demand The Thai economy continued to expand in the second quarter in Asian economies as well as export diversification to new markets will primarily from internal and external demand as well as continued fiscal help mitigate the impact. Domestic consumption and investment are stimulus. The supply disruption in the automobile sector was resolved expected to expand due to favorable employment conditions, improved sooner than expected, paving the way to a manufacturing recovery in the confidence, robust growth in credit demand, and fiscal stimulus going second half of the year. Going forward, consumption and investment will forward. continue to be supported by favorable employment and credit conditions as well as increased fiscal spending. Despite the slowdown in global oil and commodity prices, inflationary pressure remained as domestic demand continued to expand amid Inflationary pressure remained high due to elevated energy fiscal stimulus. As a result, inflation expectations have risen. prices and continued upward adjustments in the prices of prepared foods. The extension of price administration and cost-of-living alleviation The MPC judged that, despite increased risk on growth emanating measures may slow the rise in measured inflation figures, but other from risks on global growth compared to the previous meeting, the Thai measures such as the prospective increases in the minimum and fiscal economy retained its growth momentum but with heightened risks to spending amid continued economic growth will likely add to inflationary inflation, together with a sub-normal policy rate. The MPC deemed it pressure and may result in heightened inflation expectations. appropriate to continue policy rate normalization to contain inflationary pressure. The MPC therefore decided with a 5-2 vote to raise the policyIn light of the continued risks to inflation amid robust domestic demand, the interest rate by 0.25 per cent, from 3.25 to 3.50 per cent, effectiveMPC deemed it necessary to continue increasing the policy rate to immediately. The MPC will closely monitor global economic developments andmaintain economic stability and anchor inflation expectations. The inflationary pressure and stands ready to take necessary action to ensureMPC therefore decided unanimously to raise the policy interest rate by 0.25 sustainable growth for the Thai economy.per cent, from 3.0 to 3.25 per cent, effective immediately.Source: Bank of Thailand Source: Bank of Thailand Thai version - http://www.bot.or.th/Thai/MonetaryPolicy/Documents/MPC_62554.pdf English version - http://www.bot.or.th/Thai/MonetaryPolicy/Documents/MPC_62011.pdf 33 3
  • 4. Table 1. Monthly Key Economic Indicators Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11Manufacturing index 189.6 189.5 188.3 187.0 180.3 182.0 195.7 % YoY -3.4 4.1 -3.0 -6.7 -8.1 -3.7 3.3Industrial capacity utilization rate (%) 62.4 62.3 59.5 66.1 54.4 58.8 63.6Retail sales (% YoY) 8.4 9.6 9.0 4.1 7.9 8.4 n.a.Total vehicle sales (units) 93,122 68,398 77,213 93,008 67,283 55,851 70,259 72,902Motorcycle sales (units) 167,707 165,152 188,248 191,437 174,244 163,411 205,392Unemployed labor force (000 persons) 389 268 268 374 268 276 163Unemployment rate 1.0 0.7 0.7 1.0 0.7 0.7 0.4Consumer prices (% YoY) 3.00 3.03 2.87 3.14 4.04 4.19 4.06 4.08 core 1.40 1.32 1.45 1.62 2.07 2.48 2.55 2.59Producer prices (% YoY) 4.7 6.0 7.4 5.9 6.6 6.2 4.5 5.2External Accounts (USD mn, unless specified otherwise)Exports 17,219.0 16,523.0 18,406.0 21,072.0 17,243.0 19,284.0 20,816.0 % YoY 18.6 21.4 29.1 31.0 24.7 17.3 16.4Imports 15,892.0 17,111.0 16,375.0 19,180.0 17,720.0 19,010.0 18,931.0 % YoY 8.6 31.2 18.6 27.2 26.3 34.4 23.5Trade balance 1,327.0 -588.0 2,031.0 1,892.0 -477.0 274.0 1,885.0Tourist arrivals (000) 1,840 1,810 1,822 1,765 1,506 1,376 1,490 % YoY 9.5 12.8 12.8 22.7 35.9 68.8 56.3Current account balance 1,750.0 1,090.0 3,823.0 1,881.0 -165.0 -511.0 2,499.0Balance of payments 2,263 1,689 4,271 1,365 3,570 -2,600 -972FX reserves (USD bn) 172.1 174.0 179.2 181.5 189.9 186.2 184.3Forward position (USD bn) 19.6 19.0 17.7 20.8 21.4 23.5 24.4Monetary conditions (THB bn, unless specified otherwise)M1 1,302.4 1,326.2 1,346.4 1,345.6 1,347.6 1,396.4 1,337.4 % YoY 10.9 15.5 13.4 13.8 14.0 10.7 13.3M2 11,776.4 11,817.2 12,152.9 12,280.3 12,481.0 12,575.1 12,610.6 % YoY 10.9 11.5 13.7 13.1 15.2 14.3 16.3Bank deposits 10,584.9 10,606.3 10,834.2 10,893.1 10,982.1 11,094.3 10,993.3 % YoY 8.7 8.8 10.3 9.1 10.1 8.5 10.1Bank loans 9,947.0 10,064.5 10,209.7 10,308.2 10,376.2 10,517.7 10,677.6 % YoY 12.6 14.5 15.1 14.9 15.3 15.6 16.1Interest rates (% month end)BOT 1 day repo (target) 2.00 2.25 2.25 2.50 2.75 2.75 3.00 3.25Average large banks minimum lending rate 6.12 6.37 6.37 6.62 6.75 6.75 6.87 7.13Average large banks 1 year deposit rate 1.32 1.51 1.51 1.67 1.86 1.86 2.03 2.16Govt bond yield 1yr 2.38 2.54 2.68 2.83 3.00 3.15 3.50 3.64Govt bond yield 5yr 3.26 3.40 3.48 3.41 3.38 3.50 3.78 3.86Govt bond yield 10yr 3.77 3.85 3.89 3.75 3.70 3.79 3.91 4.02Key FX (month end)DXY US dollar index 79.03 77.74 76.89 75.86 72.93 74.64 74.30 73.90USD/THB 30.06 30.93 30.60 30.28 29.88 30.32 30.73 29.76JPY/THB 37.01 37.60 37.47 36.42 36.80 37.17 38.13 38.76EUR/THB 40.23 42.35 42.25 42.86 44.24 43.64 44.56 42.84Source: Bloomberg444
  • 5. 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.555