Thailand's Path to First Rate Hike Since 2011 Is Getting Rockier
By Suttinee Yuvejwattana (Bloomberg)

The long wait for a Bank of Thailand interest-rate hike may continue through November’s policy meeting as inflation moderates and the outlook for exports darkens.

While the central bank has signaled the first rate rise since 2011 is getting closer to build policy space for the future, officials have also said their decisions are data-dependent. Figures due Thursday will likely show inflation at the low end of Thailand’s 1 percent to 4 percent target zone, following earlier releases revealing surprise drops in exports and manufacturing.

“The bigger-than-expected decline in exports, which I think will ultimately have negative implications for domestic demand, suggests a rising risk of a delayed start to policy normalization,” said Euben Paracuelles, chief Asean economist at Nomura Holdings Inc. in Singapore.

Exports of goods and services are equivalent to about two-thirds of gross domestic product in Southeast Asia’s second-largest economy. The government faulted U.S.-China trade tension for September’s 5.2 percent contraction in shipments, the first in 19 months. Tourism, another engine of expansion, is sputtering as Chinese arrivals slide.

Thailand’s Finance Ministry on Monday retained its 4.5 percent projection for 2018 economic expansion while chopping the export growth forecast to 8 percent from almost 10 percent. Inflation probably held at 1.33 percent in October, according to a Bloomberg survey ahead of the Nov. 1 release.
Upcoming curbs on mortgage lending further complicate the outlook for monetary policy. The central bank plans to impose an 80 percent loan-to-value limit on mortgages for costlier homes and second properties to tackle speculative buying. Clarity on the implementation of the new regime is due in November.

“We don’t think they will implement the measures and raise the rate almost at the same time, on concerns about the double impact,” said Phacharaphot Nuntramas, an economist at Krung Thai Bank in Bangkok.

The Bank of Thailand’s benchmark rate has remained at 1.5 percent since 2015, close to a record low. That makes the country a Southeast Asian outlier, following aggressive tightening by neighbors such as the Philippines and Indonesia in 2018 to shore up their currencies and damp price pressures.
Mortgage Sector NPL Ratio

Thailand will curb mortgage lending after a climb in NPLs to reduce risks

Source: Bank of Thailand, Bloomberg

While the baht and Thai financial markets have weathered an emerging-market rout, giving officials the leeway to hold borrowing costs, the central bank has expressed concern that low rates for a long period could stoke financial risks.