THE BANK OF Thailand (BOT) will hold the policy interest rate at 1.75 per cent throughout 2019, Tada Phutthitada, president of the Thai Bond Market Association (ThaiBMA), predicted last week.
Short-term government bond yield is also expected to be stable in tandem with the BOT’s policy rate, while long-term government bond yield could be more volatile, said Ariya Tiranaprakij, senior executive vice president of ThaiBMA.
Tada believes the key factor influencing the BOT’s decision on rates this year is the level of inflation in the country .
“As the level of inflation is predicted to be low in 2019, I believe the BOT will maintain the current policy rate of 1.75 per cent throughout the year,” he said at a press conference last weekend.
The projected inflation levels for the four quarters of 2019 are 0.86, 0.98, 1.27 and 1.81 per cent respectively, according to estimates by the Trade Policy and Strategy Office, under the Commerce Ministry.
The BOT’s unchanged policy rate will mean that the yield of short-term bonds will also be close to 1.75 per cent, stated Ariya.
“When the BOT’s policy rate was at 1.5 per cent, the yield of short-term bonds was at 1.3 to 1.4 per cent. The yield of short-term bonds increased to almost 1.75 per cent after the recent rise in policy rate to 1.75 per cent,” she told reporters during an interview on the sideline.
Factors of influence
On the other hand, there are risk and positive factors at play this year that will influence the yield of long-term bonds in a high level of volatility, said Ariya.
Negative factors that could depress the yield of long-term bonds include a slowdown in economic growth, low level of inflation |and oil prices where as yields will rise due to increasing government borrowing for public investments in 2019.
Public investment is predicted to grow by 6.2 per cent in 2019, according to the National Economic and Social Development Board.
“Foreign investment in Thai bonds is also expected to further rise in 2019 despite the country’s relatively low level of interest rate,” Ariya said.
“This is because the Thai baht is expected to appreciate while inflation is likely to be low in 2019, meaning that the level of real return for foreign investors will be high.” she explained.
“This makes the Thai market a popular destination for foreign investors.”
Tada said that in 2018, the Thai bond market grew by 12 per cent with a value of Bt13 trillion, while the trading value in the bond market shrank by 13 per cent, down to a value of Bt78.834 billion per day.