At the Federal Open Market Committee (FOMC)'s third meeting of this year on April 26-27, KResearch views that the Fed will maintain their key policy rate at 0.25-0.50 percent amid heightened global economic risks, despite the slight recovery seen in US economic indicators.
Recently, a rising risk environment also led the International Monetary Fund (IMF) to cut their 2016 global growth projection from 3.4 percent down to 3.2 percent, and lowered their US growth forecast, citing external political factors, e.g., the UK's European Union membership referendum to be held on June 23, and the impeachment of the Brazilian President that could affect the US economy, being reasons that also caused the Fed to maintain interest rates for the time being.
As for the implications towards Thailand, the Fed's views on the US economy will be an important factor influencing capital flows in the near future. It is undeniable that the action of the Fed to postpone rate hikes will likely cause another surge in fund inflows into emerging economies as well as lower returns on government bonds in many countries. However, amidst insignificant progress in economic development in emerging markets, there is an impending risk of cyclical fund outflows if the Fed signals another rate hike. If this happens, the Thai government bond yield will likely rise gradually, while the THB weakens again.
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