KASIKORN RESEARCH CENTER (KResearch) holds the view that Thai Khem Khaeng bonds with a 6-year maturity, valued at THB100 billion, issued by the Ministry of Finance for subscription June 7-11, 2010, may temporarily affect banking liquidity due to withdrawals of deposits to buy them. Part of the proceeds earned from this bond offering will be used for loan repayments to commercial banks as part of the government's debt refinancing plans in the Thai Khem Khaeng investment program.
Overall, liquidity is not expected to see a significant change, especially with the hefty liquidity in the system. It is also expected that a number of special deposit products will be gradually launched by commercial banks to attract more money.
Meanwhile, KResearch views that the trend in interest rates will hinge largely on the volume of new credit extension by commercial banks and the Bank of Thailand (BOT)'s policy rate direction. The BOT has lately signaled that they might raise the benchmark rate if economic risks – especially domestic political problems and the European debt crisis – continue to ease. Thailand's strong fundamentals as seen in 1Q10 may help sustain economic growth throughout 2H10. Based on the assumption that the policy rate may be hiked in 3Q10 at the earliest, higher deposit and lending rates at commercial banks may be seen, not long thereafter.