KResearch is inclined to believe that the Federal Open Market Committee (FOMC) will ‘start' raising its key policy rate for the first time in nine years during the meeting on September 16-17. This prediction is primarily grounded on a substantial recovery within the US job market. However, we also believe that an unanimous will be unlikely since some members may want to delay a hike, considering current global financial turbulence and the US's low inflationary pressure.
Because the US economy has gained firmer footing and volatility in other parts of the world seems to have had little impact on the nation, we do not rule out a probability that the Fed will increase its key rate at this meeting. If the Fed resolves to undertake a rate hike, it will perhaps be only a small increase—0.25 percentage point or so—which would not exceed market estimates. Meanwhile, another focus will be what the Fed will signal about future policy rate trends, i.e., the wording it use to intimate lowering benchmark rate targets in the future.
Given Thailand's economic strength, as suggested by major economic indicators, we will probably manage to avoid any significant impact if the Fed uses gradual rate hikes, although any indirect effect triggered by capital flows will be hard to avert. Currently, Thailand's international reserves are threefold higher than our short-term foreign debt, not to mention a high current account surplus of around 5 percent of the GDP. The private sector, furthermore, has increasingly adopted risk-hedging tools to better deal with adverse effects from higher value of debts borrowed in foreign currencies, as well as volatility in forex rates.
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