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17 Mar 2010

International Economy

Varying Timing of Monetary Policy Changes of US, Japanese, European and Asian Central Banks (Business Brief No.2779)

The trend of economic recovery in many regions became clearer yet with different degrees of in early 2010. Economic improvements (after the global economic crisis recently bottomed out) show that Asian economies are stronger than in other regions and should be regarded as a key driver for the overall global economy this year. Meanwhile, G-3 economies are shouldering some risks of fragility in their recoveries.
KASIKORN RESEARCH CENTER (KResearch) views that many Asian central banks are apparently moving toward tightening their monetary policy stances. It is possible that the People's Bank of China (PBOC), Reserve Bank of India (RBI), Central Bank of the Republic of the Philippines, Bank of Korea (BOK) and Bank of Thailand (BOT) will increase their policy rates soon. The PBOC and RBI will likely begin such tightening in 1H10. Although the Bank of Thailand (BOT) has already signaled an imminent upward policy rate trend, political discord remains the most important factor that may delay tightening here.
Meanwhile, the European Central Bank (ECB) and Bank of Japan (BOJ) may face obstacles to their interest rate adjustments. The ECB will have to carefully consider the impacts of the fiscal crises arising with some Eurozone members. In addition, deflation may delay the timing of any policy rate increases by BOJ.
Although the Fed views that they might have a few more months before adjusting their rate, the US weakening real estate indicators will affect the Fed's consideration about appropriate timing of their interest rate increases. As for Thailand, the BOT will have to monitor the short-term risk factors, particularly political uncertainty. If the political situation eases and Thai economic indicators signal continuity in our recovery – as seen in previous months – the BOT may adjust their monetary policy rate in line with other Asian central banks.

Amid an unclear future for interest rates to be set by many key central banks (the Fed, ECB and BOJ), capital inflows into Asia will probably continue throughout 1H10, particularly with the market expectation that the Yuan will strengthen in 2Q10. As a result, upward trends in most Asian currencies – including the Baht – are likely to appear in the months ahead. Regarding the Baht, if political problems can be resolved peacefully and the BOT manages the Baht's movement in consistency with other Asian currencies, it may appreciate to test resistance levels of THB32.25-32.30 per US Dollar in the short-term.

International Economy