Economists anticipate that volatility of fund flows and currencies in emerging markets will ease after Janet Yellen takes over the US Federal Reserve in February, as she will continue to follow the policy of its current chairman Ben Bernanke of a gradual
Roong Sanuanruang, chief market analyst for market sales and trading at Bank of Tokyo-Mitsubishi UFJ, said the market had a positive view of Yellen. The bank expects QE tapering will be seen in the first half of next year after the United States solves the deadlock over the government shutdown and the debt ceiling.
The market does not think US lawmakers will allow the country to fall into technical default on its debt obligations. She said QE tapering, therefore, should be seen before the second half of next year because the US economy had shown a steady recovery.
In the next three to six months, Asia currencies could strengthen, but fund flows will not be made highly volatile by the gradual QE tapering. However, investors are expected to be more selective among emerging markets, and Thailand will be among the destinations of their funds, she said.
Usara Wilaipich, an economist at Standard Chartered Bank (Thai), said that regardless of who had been nominated as head of the Fed, the QE would have to be tapered at some point. US economic figures including those on unemployment show that the country has bottomed out, so money injection through QE should be eased.
The QE tapering had been delayed because the US must deal with its debt ceiling this month, and the market believes Congress will be able to solve the deadlock on that issue. The bank expects to see tapering in December or at least within the first quarter of next year, she said.
Capital inflows and outflows next year are expected to be smaller than this year, resulting in a relaxation of market and currency volatility, she said, adding that the baht had less chance of going below 30 against the US dollar.
Pros and cons
Stabilisation of the currency will take pressure off Thai exporters, but on the other hand, importers who have debt in foreign currencies should make preparations to reduce risks.
Usara said QE tapering was not expected to have an impact on interest rates in Asia including Thailand, noting that Indonesia, India and the Philippines are facing soaring inflation and other issues, making it necessary to increase their policy rates. In Thailand, the policy rate of 2.5 per cent is accommodative enough to drive the economic base, so Standard Chartered does not think the Bank of Thailand will raise the rate until the first half of next year.
If interest rates next year are on an upward trend, the BOT’s rate should be increased in the second half. However, if government policy, which will play a critical role in the Thai economy next year, is not able to trigger investment, the central bank might cut the rate to enhance the economy.