Our monitoring of changes in business sector funding costs throughout 2009 using the FCI (Financial Condition Index) developed by KASIKORN RESEARCH CENTER (KResearch) shows that Thailand has encountered tightened financial conditions, indicating the higher funding costs since the middle of 2009, especially after corporate bond yields began to increase in line with government bond yields, and commercial banks began foregoing further lending rate cuts. The result of this was an overall trend of higher, less attractive funding costs reflected in a slow recovery in the FCI during 2H09.
However, we have to admit that the latest FCI for the first 2 months of 2010 came out better than expected, due to lower bond yields in January and the recovery of Thai stock markets in the latter half of February, along with low bank lending rates. Although KResearch holds the view that the FCI should maintain this positive sentiment for the next 1-3 months, later on, the index may lose some momentum, which means that financial costs may again move higher, amid risks from political dissention and the Map Ta Phut environmental impact cases that are pressuring Thai stock markets. Besides these factors, a signal for possible BOT policy rate increases — that might be seen during the remainder of this year — may also pressure bond yields to rise, as well as contribute to a possible shift in the interest rate course of commercial banks.
Nevertheless, despite the possibility of higher financial costs of the business sector this year, if the economy continues to improve, a better economy should boost business revenues, offsetting the higher funding costs and, thus, providing support to recovery momentum of the economy, overall.