K bank perspectives feb data warrants rate hike in apr

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MPC will increase R/P rate?

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K bank perspectives feb data warrants rate hike in apr

  1. 1. Economics /.Mean S Capital Market Perspectives KBank Strategy February economic data warrant BoT’s rate hike FX / Rates 31 March 2011 Thai economic data in February showed growth momentum remained robust; 25bp policy rate hike is warranted on April 20th Nalin Chutchotitham nalin.c@kasikornbank.com USD/THB likely to fall in the near–term due to large current account surplus while BoT’s NEER suggests export price competitiveness Little reaction in the market was observed today except for the IRS yields that continued to rise this week, amounting to about Disclaimer: This report 25bp for the 1- and 2-year yields must be read with the Disclaimer on page 5 that forms part of itDomestic economy: Consumption remained supported by growth of farm income. The private consumption index rose 3.3% from the same period last year (-0.4%mom sa). Manufacturing production -3.4% yoy due to seasonal factors - maintenance closure of petroleum plants. Investment remained strong with the private investment index growing by 11.8% yoy and 1.0% mom. In particular, sales of vehicles were strong (commercial 37%, passenger 49%). Investment in capital goods was also in line with expansion of production capacity with the private investment index growing by Yet, there seems to be lower confidence, as shown from the business sentiment indices for current assessment (-0.5 to 52.3) and 3- month forward outlook (-0.6 to 55.5). The growth of credit extension also reaffirmed an encouraging momentum for the Thai economy. Private credit growth continued to pick up from both corporate and household loans. (15.0% yoy). Deposit grew 10.2% yoy (increase from 8.9%) mainly on the back of Korean FIF inflows.Private investment and consumption indices Private credit and deposit growth rates PII PCI % yoy 200 150 16 14 180 140 12 10 160 130 8 140 120 6 4 120 110 2 0 100 100 -2 03 04 05 06 07 08 09 10 11 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Private Investment Index (sa, left axis) Private Consumtption Index (sa, right axis) Private credit Private Deposits M2Source: Bloomberg,CEIC, KBank Source: Bloomberg, KBank111
  2. 2. External economy: Exports volume excluding gold increased 14.7% yoy in February, slightly stronger than that of January’s growth of 13.8%. In particular, exports from the agriculture and manufacturing sectors remained robust. Imports value slowed down in February to 18.6% (Jan=31%), partly due to smaller volume of gold imports. The imports of capital goods (33.0% yoy) were in line with production expansion by Thai businesses; a surge in fuel imports (63.9% yoy) reflected higher crude oil prices. Unwrought gold exports for the month was at $1.24bn while imports totaled $0.89bn, leading to a net exports of $354mn. Services, income and transfers account remained in surplus of $1.8bn, in line with higher hotel occupancy rate and tourist arrivals. Factoring in the trade balance surplus of $2.03bn, the current account balance registered a huge surplus of $3.8bn, boding well for the strength of Thai baht going forward.Exports and Imports growth Current account and balance of payments US$, mn 100 80 6000 5000 60 4000 40 3000 20 2000 0 1000 -20 0 -40 -1000 -60 -2000 Jan-08 Jan-09 Jan-10 Jan-11 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Export (% YoY) Import (% YoY) Trade balance Services and transfers Balance of PaymentsSource: Bloomberg, KBank Source: Bloomberg, KBankMarket outlook: USD/THB: large current account surplus means a stronger baht is likely due to business flows. BoT’s weighted exchange rate for Thai baht or NEER had been declining since end-2010, indicating that Thai baht had been weakening against the currencies of major trading partners. This could bode well for the performance of exports going forward. At the same time, Thai baht had been underperforming regional currencies in strengthening against the U.S. dollar this year. Part of this reason is the fact that Thai baht was among the top three gainers last year. Nevertheless, there could be a “catch up” appreciation in Thai baht as we continue to observe correlation between the Asian currencies. We maintain our expectation for USD/THB at 30.00 at end-June and 29.00 at year-end. Policy rate: the healthy outset of Thai economy in the first two months should support the BoT’s policy rate hike direction. However, the BoT did made it clear in their policy statement and meeting minutes that a gradual interest rate increase approach is proper although continued assessment of price pressure had to be maintained. We expect the next three MPC meetings to bring 25bp of rate hike each, bringing the policy rate to 3.25% by end July. This week’s spikes in IRS yields may be reflecting the market’s declining comfort about what had been priced in earlier for short-term rates, hence the need for catching up. We expect IRS yields remain elevated prior to the MPC meeting on April 20th but it is unlikely to climb much higher after 1- and 2- year yields had risen more than 25bp in a week’s time. Another factor to watch is the increase in inflation rate (consensus 3.10% in March, up from 2.87% in February)222
  3. 3. Asian currency index and USD/THB BoT NEER and REER 118 29 108 106 116 30 104 102 114 31 100 98 112 32 96 baht weaker against 110 33 94 trading partners 92 currencies 108 34 90 Jan-10 Mar-10 May -10 Jul-10 Sep-10 Nov -10 Jan-11 Mar-11 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Asian dollar index USD/THB (right-axis-inverted) BoT NEER BoT REERSource: Bloomberg, KBank Source: CEIC, KBankChange in interest rate swaps Inflation rates bp IRS yield curve change % 10% 40 5.0 8% 35 4.5 6% 30 4.0 4% 25 3.5 2% 20 3.0 0% 15 2.5 -2% 10 2.0 -4% 5 1.5 -6% 0.1 0.2 0.3 0.2 0.8 1.0 2.0 3.0 4.0 5.0 7.0 10.0 12.0 15.0 20.0 yrs 05 06 07 08 09 10 11 Change (right axis, bps) 31-Mar-11 24-Mar-11 CPI yoy Core CPI yoySource: Bloomberg, KBank Source: Bloomberg, KBank333
  4. 4. Monthly Key Economic Indicators Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan-11 Feb-11 Mar-11Manufacturing index 182.4 189.4 188.0 189.1 189.9 192.1 188.5 % YoY 8.4 8.1 6.0 5.7 -3.4 4.1 -3.4Industrial capacity utilization rate (%) 63.6 64.4 63.9 63.6 62.4 62.3 59.1Retail sales (% YoY) 8.6 9.1 5.4 8.2 8.0 8.1 n.a.Passenger car sales (units) 65,724 68,261 72,012 78,874 93,122 68,398 77,213Motorcycle sales (units) 154,388 146,887 143,791 152,767 167,707 165,152 188,248Unemployed labor force (000 persons) 353 343 355 389 268 374 n.a.Commercial car sales (units) 0.9 0.9 0.9 1.0 0.7 1.0 n.a.Consumer prices (% YoY) 3.3 3.0 2.8 2.8 3.0 3.0 2.9 core 1.2 1.1 1.1 1.1 1.4 1.3 1.5Producer prices (% YoY) 11.3 11.6 10.0 7.1 4.7 6.0 7.4External Accounts (USD mn, unless specified otherwise)Exports 16,292.0 17,955.0 17,046.0 17,584.0 17,220.0 16,523.0 18,406.0 % YoY 23.6 21.8 16.6 28.7 18.6 21.4 29.1Imports 15,440.0 14,712.0 14,773.0 17,094.0 15,911.0 17,111.0 16,375.0 % YoY 41.8 15.7 14.4 35.0 8.8 31.2 18.6Trade balance 852.0 3,243.0 2,273.0 490.0 1,309.0 -588.0 2,031.0Tourist arrivals (000) 1,268 1,220 1,360 1,500 1,840 1,810 1,822 % YoY 12.5 1.9 6.3 10.3 9.5 12.8 12.8Current account balance 280.0 2,767.0 2,740.0 1,019.0 1,750.0 1,090.0 3,823.0Balance of payments 3,589 4,270 5,822 820 2,263 1,689 4,271FX reserves (USD bn) 154.7 163.1 171.1 168.2 172.1 174.0 179.2Forward position (USD bn) 12.1 11.1 12.6 15.3 19.6 19.0 17.7Monetary conditions (THB bn, unless specified otherwise)M1 1,181.4 1,175.5 1,202.3 1,235.4 1,302.4 1,326.2 1,346.4 % YoY 11.4 11.7 11.4 10.8 10.9 15.5 13.4M2 10,968.1 11,116.1 11,323.3 11,497.6 11,776.4 11,819.2 12,146.9 % YoY 8.5 9.9 11.2 11.1 10.9 11.5 13.7Bank deposits 10,016.0 10,091.6 10,206.0 10,392.3 10,583.4 10,607.0 10,827.7 % YoY 6.6 7.8 8.5 8.1 8.7 8.9 10.2Bank loans 9,299.8 9,432.7 9,580.3 9,751.1 9,934.4 10,058.9 10,207.3 % YoY 9.8 10.8 12.1 12.2 12.5 14.4 15.0Interest rates (% month end)BOT 1 day repo (target) 1.75 1.75 1.75 1.75 2.00 2.25 2.25 2.50Average large banks minimum lending rate 6.00 6.00 6.00 6.00 6.12 6.37 6.37 6.62Average large banks 1 year deposit rate 0.98 1.11 1.11 1.11 1.32 1.51 1.51 1.67Govt bond yield 1yr 1.99 2.01 1.98 2.11 2.38 2.54 2.68 2.83Govt bond yield 5yr 2.69 2.56 2.83 2.98 3.26 3.40 3.48 3.41Govt bond yield 10yr 3.01 3.12 3.18 3.59 3.77 3.85 3.89 3.75Key FX (month end)DXY US dollar index 83.20 78.72 77.27 81.20 79.03 77.74 76.89 75.89USD/THB 31.27 30.35 29.94 30.21 30.06 30.93 30.60 30.25JPY/THB 37.14 36.34 37.18 36.11 37.01 37.60 37.47 36.54EUR/THB 39.65 41.38 41.76 39.22 40.23 42.35 42.25 42.88Source: Bloomberg444
  5. 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

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