Baht depreciation expected

By SUCHEERA PINIJPARAKARN 
THE NATION

 

Tak Bunnag, head of Bank of Ayudhya’s Global Markets Group.

 

BANGKOK:-- THE EXPECTED policy-rate increase by the US Federal Reserve next month would result in the baht deprecating for at least two quarters consecutively, and Thai companies that plan to raise finances from bonds would face rising funding costs, according to Bank of Ayudhya (Krungsri).

 

The market predicts that the Fed will increase its benchmark interest rate by 25 basis points in December, and Krungsri has the same view, said Tak Bunnag, head of the bank’s Global Markets Group.

 

The bank expects the Fed will rise the policy rate twice in 2017, ending up at 1 per cent from 0.25 per cent currently.

 

Full story: http://www.nationmultimedia.com/news/business/investment_finance/30300862

 

 

 

-- © Copyright The Nation 2016-11-26

The US is in the slowest recovery from recession since WWII. Never in the past 8 years has GDP increased by even 3%. There are way too many Americans out of the workforce and way too many receiving welfare and food stamps. The extremely long time that interest rates have been at historic lows is a strong indicator of those. That's not just interest on the Fed's T Bill rate but interest rates on home and car loans, etc. These low rates were meant to stimulate borrowing and spending.

 

I have no idea how the Fed can raise interest rates in this environment. Time will tell.

 

Cheers.

26 minutes ago, NeverSure said:

The US is in the slowest recovery from recession since WWII. Never in the past 8 years has GDP increased by even 3%. There are way too many Americans out of the workforce and way too many receiving welfare and food stamps. The extremely long time that interest rates have been at historic lows is a strong indicator of those. That's not just interest on the Fed's T Bill rate but interest rates on home and car loans, etc. These low rates were meant to stimulate borrowing and spending.

 

I have no idea how the Fed can raise interest rates in this environment. Time will tell.

 

Cheers.

Perhaps inflation worries?

Good for Thai exports and tourism.

The US economy will pay a heavy price. Hikes in interests rates are done to put the brakes on a booming economy. The US economy is in the doldrums and even a small interest rate hike will be a dampener for growth and will tank the stock market. They are clearly worried that cheap debt must end but what are they going to do when investment contracts and deflation takes hold because for sure that's what will happen.

 

Get real Janet Yellen!

I'm confused about this situation.  Keeping interest rates low takes away what has always been a conservative investment option.  Bonds and other interest bearing choices were always a portion of my portfolio both in business and personally.  Essentially, governments across the world have done away with the ability to put funds in a safe place for current needs, or as a safe haven for investors who don't want all their money tied up in property or subject to the whims of the stock market.

 

How does eliminating interest rate arbitrage help the economy?  It seems to me that it would depress economies in the long term, but at my age (72)  I don't have enough brain cells or education to see a way out of this conundrum.  

 

Some discussion technically of how interest fits into the big picture would be appreciated.

 

 

Is somebody really able to predict the economy : even Fed Reserve Chairman Alan Greenspan had no clue of the crash until the day it happened in 2008.

A good economy is where the people believe it is good

A bad economy is where the people believe it is bad

The investors are like a bunch of small dogs : if one dog pees against a tree...all the dogs rush to this tree...until one starts to bark and panic hits

39 minutes ago, fvw53 said:

A good economy is where the people believe it is good

Exactly correct. It is confidence in the economic situation that gives it strength.

45 minutes ago, TGIR said:

I'm confused about this situation.  Keeping interest rates low takes away what has always been a conservative investment option.  Bonds and other interest bearing choices were always a portion of my portfolio both in business and personally.  Essentially, governments across the world have done away with the ability to put funds in a safe place for current needs, or as a safe haven for investors who don't want all their money tied up in property or subject to the whims of the stock market.

 

How does eliminating interest rate arbitrage help the economy?  It seems to me that it would depress economies in the long term, but at my age (72)  I don't have enough brain cells or education to see a way out of this conundrum.  

 

Some discussion technically of how interest fits into the big picture would be appreciated.

 

 

 

The answer is : nobody has a clue, but there are any number of economists with opinions on the matter.

 

There are two main stories, (but there are other things going on)

 

1. Central banks want to keep the finance system running. To do this the debts have to be paid and new debts taken out. Central banks like inflation, because historically it has led to wage inflation, so the old debts are easier to be paid off. Unfortunately for them the world's economy is becoming very efficient at making and transporting stuff very cheaply, and with global competition companies simply cannot afford to give wage increases. This has led to stagnant living standards in a lot of developed economies. Japan is a prime example.

 

Lower interest rates are supposed to cause inflation, but this mechanism is not direct and possibly has never worked except in real estate. So the CB are now mostly using 'forward guidance' to 'set inflation expectations'. Aka if the peeps believe, it will come to be.

 

Unfortunately savers like us are not required anymore, as central banks will provide enough liquidity at low interest rates for the banks to balance their books each day. They want you to spend, not save, so that your money, which was created by somebody else going into debt, can end up paying off a debt somewhere in the system.

 

2. Governments like to keep the exchange rate down to increase exports and increase spending on domestic goods. A lower interest rate will tend to sink the currency. This is a two edged sword, as a lot of manufactured stuff relies on imports. The UK is in a particularly bad spot, as they have been importing way more stuff than exporting for decades and Draghi is still rampaging about every month buying another EUR 70,000,000,000 (may be more now) worth of bonds and charging banks to keep money on his books.

Janet Yellin is a political creature that would like nothing more than to see POTUS Trump saddled with a recession before the next election cycle. Janet has a job until 2018 and is going to see what economics she can create to get Democrats elected to the House and Senate in 2018. I expect a raise in rates for December of 2016 and 3 more in 2017 (Feb,April, July).

9 minutes ago, IAMHERE said:

Janet Yellin is a political creature that would like nothing more than to see POTUS Trump saddled with a recession before the next election cycle. Janet has a job until 2018 and is going to see what economics she can create to get Democrats elected to the House and Senate in 2018. I expect a raise in rates for December of 2016 and 3 more in 2017 (Feb,April, July).

 

No hope for Dems in 2018. There are 25 Democrat Senate seats, and only 8 Republican up for election.  The House has a large Republican majority.  4 interest rate increases in 1 year when there is little inflation now? That would be unprecedented, don't see that happening.

Sounds to me more like a case of the USD rising against all other currencies rather than an across-the-board fall in the THB's value.

 

Regardless of whether or not the Fed decide to increase US interest rates, the jolly old GBP will doubtless still continue on its downward plunge towards parity with the THB in the run-up to Brexit.

5 hours ago, NeverSure said:

The US is in the slowest recovery from recession since WWII. Never in the past 8 years has GDP increased by even 3%. There are way too many Americans out of the workforce and way too many receiving welfare and food stamps. The extremely long time that interest rates have been at historic lows is a strong indicator of those. That's not just interest on the Fed's T Bill rate but interest rates on home and car loans, etc. These low rates were meant to stimulate borrowing and spending.

 

I have no idea how the Fed can raise interest rates in this environment. Time will tell.

 

Cheers.

 

You are 100% right on all points.  I think the Fed will raise the rate in December as they fear deflation and see this as one (flawed) way to maintain some inflation ... as you say they will not raise the rate to reflect real economic growth.  I would expect that a rate increase in Dec would be the last for some time to come or they risk further importing deflation.

 

The US has been demonstrating signs of inflation recently.  My view is that this is cyclical and not structural inflation.  Without structural inflation/real economic growth there is no way they can go on raising interest rates.

8 hours ago, rooster59 said:

The bank expects the Fed will rise the policy rate twice in 2017, ending up at 1 per cent from 0.25 per cent currently.

 

1% will be the straw that breaks the camels back and the rest of the people living on a financial teeter totter. It will be like a financial elevator with the USA going up and the rest of the world down. You know the consequences of that. Mortgages are based on bond prices and they are climbing. Government debt payments will increase. Maybe the TBill buyers/suckers will see the light but somehow I doubt it. I think the Fed with their two raises for 2017 is blowing smoke up their keister but we live in a world of threats and false promises anything is possible. The Fed is really losing credibility and its so called neutrality. Their bias towards the rich and powerful is becoming more self evident even to the white supremacists. Trump says begone to witc* and she in return says up yours. Lets see next year who the winner is. I have learned from the past never to argue with a woman. 

8 hours ago, rooster59 said:

THE EXPECTED policy-rate increase by the US Federal Reserve next month would result in the baht deprecating for at least two quarters consecutively,

The oracle of Thailand has spoken mark it on your calendars which reminds me I must look for a new one for 2017. I wonder if he could be more exact and tell me how many bahts down? Must also get the monk to bless it. At 78 I don't know if I will get to rip the November page off. Oh well its been a great ride.

7 hours ago, NeverSure said:

The US is in the slowest recovery from recession since WWII. Never in the past 8 years has GDP increased by even 3%. There are way too many Americans out of the workforce and way too many receiving welfare and food stamps. The extremely long time that interest rates have been at historic lows is a strong indicator of those. That's not just interest on the Fed's T Bill rate but interest rates on home and car loans, etc. These low rates were meant to stimulate borrowing and spending.

 

I have no idea how the Fed can raise interest rates in this environment. Time will tell.

 

Cheers.

If they somehow do to manage this mean feat a lot of borrowers will be caught with their financial knickers down. That includes the government who may lose a lot more than their knickers. Hunker down folks. Its not ark building time yet but the water as the song goes could be "40 feet and risin"

6 hours ago, craigt3365 said:

Perhaps inflation worries?

They want more inflation it eats away at the debt like the Pac Man game. 

6 hours ago, fruitman said:

Good for Thai exports and tourism.

Lets pray that the tourists still have money to spend as the cost of covering their debt from previous vacations climbs. Higher rates can also take their toll on exports. At the first smell of trouble the consumer pulls in his horns and a snowball effect happens. The debt balancing act is a real challenge. Add higher rates to one side of the scale and you know what happens. All is not golden but on the other hand buy your gold now with a strong baht. Will it go lower hmm. If the Grinch of India decides to close down all gold sales look out below. Don't say never happen this guy like the Philippines is right off the charts. And then Trump joins the club. 

4 hours ago, maoro2013 said:

Exactly correct. It is confidence in the economic situation that gives it strength.

And that confidence is hard to find with a hundred million unemployed or underemployed people. Good gainful employment is the only way to awaken the US dead dog economy.  Many of these people who used to have good jobs are now vilified by the uninformed people who always lay the blame at the bottom.  Its hard to piss up hill isn't it.

Trump business model.... asset strip and sell off?

Money it does run all of us life and yet country like the USA still printing money and have a huge debt in the trillions dollars that will never be paid back their bubble will explode soon and China will take over .

12 minutes ago, mettech said:

Money it does run all of us life and yet country like the USA still printing money and have a huge debt in the trillions dollars that will never be paid back their bubble will explode soon and China will take over .

China isn't doing so good these days.  The US debt is a problem, but it's not as bad as it is in many other countries.  Plus, the US is an economic engine that can deal with it.

Elgordo said:  "At 78 I don't know if I will get to rip the November page off (the 2017 calendar).. Oh well its been a great ride.

 

With 9416 posts already, I think you will easily make it to at least 10000!  Not wthout an abundance of wit and intelligence too! Some jealous posters on here might say mainly with wit but I would disagree!  Good luck!

10 hours ago, rooster59 said:

baht deprecating for at least two quarters consecutively

Not a surprise and the BOT has had all of 2016 to lower interest rates to boost contracting export revenues. While accounting for 70% of GDP, export growth rates have been negative and foreign investment has been fleeing Thailand. Yet, all of the government's predictions for favorable GDP growth in 2016 has relied on predictions of net increases in export growth rates of upwards of 5%.

 

BOT could have been proactive in lowering rates through the third quarter to stem the flight of foreign investment (what some might call "doing their job") but that might have not sent a positive economic message to the public that would be consistent with Prayut's promises that he is fixing the economy. Now BOT can let the US rate increase be the cause for depreciating the baht (as it did with China's depreciarion of the yuan) and claim innocence in the affair.

1 hour ago, craigt3365 said:

China isn't doing so good these days.  The US debt is a problem, but it's not as bad as it is in many other countries.  Plus, the US is an economic engine that can deal with it.

 

And the real biggie is that the USD is the world's reserve currency.

 

2 hours ago, elgordo38 said:

Lets pray that the tourists still have money to spend as the cost of covering their debt from previous vacations climbs. Higher rates can also take their toll on exports. At the first smell of trouble the consumer pulls in his horns and a snowball effect happens. The debt balancing act is a real challenge. Add higher rates to one side of the scale and you know what happens. All is not golden but on the other hand buy your gold now with a strong baht. Will it go lower hmm. If the Grinch of India decides to close down all gold sales look out below. Don't say never happen this guy like the Philippines is right off the charts. And then Trump joins the club. 

 

It is difficult to say how that would pan out.

 

This is a tremendous demand for metal in India. The black market in gold would spring up and the illegal imports start again. The Indians have a well founded mistrust of banks and prefer to have their money in something more tangible. The recent invalidating of 500 and 1,000 Rupee notes will certainly increase gold sales.

 

A lump of gold will always be easily tradeable, unlike the paper, which can apparently without warning overnight be declared worthless.

 

 

10 hours ago, craigt3365 said:

Perhaps inflation worries?

They've been trying to tout inflation as a reason for raising interest rates for five years now. The problem is inflation doesn't cooperate with them. The inflation hawks/austerians managed to push through a 25 basis point rise in the overnight rate last December, and were bragging that they would get at least three more rises this year, but the economy has refused to cooperate. Growth has been "moderate" at best, inflation according to their preferred indicator (the Personal Consumption Expenditures index) has been around 1.5% all year, and there does not seem to be any rise in labor compensation, so inflation is not really likely. Then they say monetary policy has "long and variable lags." That means they can't really connect economic effects to changes in policy, so the causality may not exist. It will be good for me if the baht depreciates, but I'm expecting the dollar to go the other way with the clowns President Trump is going to put in charge.

Wow! all this financial tech has really got me confused.What does it all mean to the average guy in the soi,whom hasnt got a scooby about anything that has been purported by the wise posters here?

On 26/11/2016 at 3:23 PM, Grubster said:

And that confidence is hard to find with a hundred million unemployed or underemployed people. Good gainful employment is the only way to awaken the US dead dog economy.  Many of these people who used to have good jobs are now vilified by the uninformed people who always lay the blame at the bottom.  Its hard to piss up hill isn't it.

Are you sure 100 million unemployed, of employable citizens, that is?

 

So DT is doing the right thing, trying to keep jobs in the country by getting out of the TPP agreement.

1 hour ago, maoro2013 said:

Are you sure 100 million unemployed, of employable citizens, that is?

 

So DT is doing the right thing, trying to keep jobs in the country by getting out of the TPP agreement.

No but I am sure at least that many unemployed and underemployed. underemployed is not gainful employment, like minimum wage and/or the 35 hour work week so many employers are using so they don't have to pay any benefits.   

                  Yes he may do the right thing, but putting equal tariffs on foreign goods would be a much bigger and better step, which he has also promised to do. But doing that would fly in the face of what congress and the foreign lobby do for a living, so I won't hold my breath.      I think he will probably be allowed to make a few small changes there but not enough to make it anything close to fair trade.  We will see soon.     The TPP is dead already and DT won't be able to take credit for that.