KResearch has evaluated that there should be room for the US central bank to raise its Fed Funds rate perhaps another one or two more times this year. Further, during its upcoming meeting,we expect them to reveal its timeline toward scaling back its balance sheet, especially if risks facing the global economy seem to be subsiding. Over the short term, we will need to closely monitor the politics there, though, as well as geopolitical tensions elsewhere. If such factors do not cause any great concern, the global financial market focus will no doubt shift back to the possibility of a Fed rate hike being approved at its June meeting.
With regard to how the Fed's so far unchanged rate will affect Thailand, our take is that there will not likely be any significant impact soon. At the very least, though, if the Fed retains its stance, it will probably induce further continual capital inflows in emerging markets – including Thailand – thus causing some volatility in forex rates. However, if the Fed assumes a steady path toward rate hikes, along with the probability of shrinking balance sheet, the returns on US bonds would then likely increase, particularly on long-term tenors. Such higher returns would affect Thai government bond rates, therein posing uncertainty over future capital flows and the Baht forex rates.