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8 Dec 2006

Financial Markets

FED and BOT Likely to Keep the Same Interest Rates in Final ’06 Meetings(Business Brief No.1907)

KASIKORN RESEARCH CENTER (KResearch) projects that both the US Federal Reserve and the Bank of Thailand will likely keep their respective Fed Funds rate and 14-day repurchase rate at the same levels of 5.25 percent and 5.00 percent respectively in this year's last round of meetings on December 12 and 13, 2006. We also forecast that both the above central banks will yet send any hint for easing their policy rates in the near future, as they prefer to wait for a timing when are assured that inflation rates have truly stabilized before carrying out any such easing. They will be monitoring whether their economies show any clear signs of slowing seriously (particularly the US economy). Therefore, the timing that both banks will undertake in reducing their interest rates may probably be some time in the first half of 2007.
Concerning the BOT's new policy rate, the 1-day repurchase rate that they will start to use as the policy rate instead of the 14-day ‘repo-rate' beginning with the first round of meetings next year on January 17, 2007 (according to the BOT's monetary framework reform), KResearch holds the view that this implementation will likely influence interest rates in the money market to better reflect the actual interest rate trend. In addition, this step should support long-term business transactions and would also conform with the BOT's guidelines toward developing the repurchase market of the private sector. However, apart from the BOT's task to set a rate for the new policy tenure, the BOT may also have to set tone for its conduct of monetary policy– whether it will be stricter, more flexible or maintain a status quo.

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