KResearch projects that the Federal Reserve (Fed) will keep the US policy rate within the range of 0.00-0.25%, and it is unlikely that the Fed will announce any additional tools for quantitative easing (QE) at the Federal Open Market Committee (FOMC) meeting to be held on December 15-16, 2020. Nonetheless, close attention should be paid to two particular issues during this upcoming Fed meeting, namely details of the guidelines for the asset purchase program and a new set of economic projections by Fed. It is expected that Fed will release details of Fed forward guidance, particularly the conditions regarding the maturities of purchased bonds and the timeframe for implementation of QE measures. Previously, Fed only stated that asset purchase program would be made “over the coming months". Moreover, the Fed may revise its US economic projections for 2022-2023 as a result of the successful development of COVID-19 vaccines. However, it will maintain a cautious stance towards the trend of US economic recovery in 2021.
Based on these trends, KResearch is of the opinion that the Fed may signal further monetary easing within 1Q-2021 due to risks posed by COVID-19, which has prompted many US states to issue additional infection prevention and control measures. The state of the US economy will still hinge upon any fiscal stimulus packages that will take effect after a new economic team under President-elect Joe Biden take office
Therefore, the potential impact on Thailand that requires close monitoring and assessment will likely be pressure on the Baht, which could strengthen even further in 2021. It is projected that the Baht may gradually strengthen to the level of THB 29.00 – 29.25 per USD by the end of 2021, given a weakening US dollar as Fed is set to maintain its accommodative monetary stance to help generate confidence and sustain the US economy. Moreover, the Baht will be supported by Thailand's strong fundamentals, especially its current account surplus and the likelihood of continuous capital inflows into Asian financial markets including Thailand's.
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