Global financial markets are spotlighting on the FOMC meeting, September 17-18, because it is expected that this meeting will resolve to give a green light to the commencement of QE ‘tapering'. Recent positive developments in the US economy showing a broad-based recovery should support cutbacks in QE bond purchases. Amid a fragile recovery and imminent risks, we at KResearch believe that such tapering will likely start off with a small cut; the size of the Fed's reductions later on will then be gauged to economic developments there.
Although the Fed is easing off their bond-buying program, it doesn't necessarily mean that they will adopt tighter monetary policy. In the face of a challenging situation wherein other major economies have not regained strength, to guarantee that the US economy is heading toward genuine stability, an easing monetary policy with a low key policy rate will likely be essential for economic growth over the next few years. It is expected that the Fed will hold their low policy rate steady for some time, or until unemployment is down to 6.5 percent and inflation rises to over 2.5 percent – neither such event is likely to happen soon.
As for Thailand, QE tapering may pose a short-term risk to Thai bond yields. But with relatively solid fundamentals in our economy and the foreign financial sector, Thailand should be somewhat safe from the harsher impacts of QE tapering to some extent.