While the COVID-19 outbreak continues to ravage the country and further delays economic recovery, the Thai financial system will be flush with liquidity demand throughout 2021, thanks to fundraising efforts by the government – which are required to promote spending to support the economy. Concurrently, the private sector has raised funds through issuance of corporate bonds and loans from financial institutions.
KResearch has conducted an assessment of this year's trend in demand for liquidity and supply of liquidity, and found an excess demand for liquidity being at THB1.46 trillion. However, this situation will remain manageable and is unlikely to cause yields or interest rates in the market to soar to levels that could affect economic recovery over the rest of the year, as the Bank of Thailand (BOT) has the tools/mechanisms needed to help provide and manage overall liquidity levels. In addition, there is accumulated liquidity from other areas in the financial system. Moreover, pressure on the current account balance is expected to gradually decrease over the course of 2H21.
Although liquidity is presently at manageable levels, KResearch maintains its view that other factors could potentially force the cost of fundraising via the Thai bond market to go up for the rest of 2021. The 10-year Thai government bond yield may rise to a range of 1.70-2.10 percent by year-end 2021. Hence, the upward trend for this bond yield will most likely raise the cost of issuing corporate bonds. Nevertheless, the trend of bond yields will not influence commercial banks' interest rates, which tend to be more dependent on the monetary policy rate and the overall state of the Thai economy.