Economic Highlights (Thailand) – 01/04/2014

Money Supply Remained Stable But Private Credit Growth Decelerated In February

u  The supply of broad money was sustained at 7.5% y-o-y in February, matching the pace in the previous month and extending its strongest growth for six consecutive months. Underlying liquidity conditions were driven by the increase in net foreign assets, but were offset by a decline in domestic claims, particularly from the private sector.

u  Meanwhile, private sector credit moderated to 8.6% y-o-y in February, from +9.3% in January, led by both loans extended to households and to businesses. At the same time, deposits including bills of exchange picked up to 7.7% y-o-y in February, from +7.3% in January, as deposits placed by local governments and other residential sectors increased during the month. As deposits outpaced loans growth during the month, the banking system’s loan-to-deposit ratio dropped to 95.0% in February, from 96.0% in January and compared with 96.6% in December.

u  Going forward, inflationary pressures will likely remain benign for the rest of 2014 amid the lack of demand-pull factors, as consumer demand will likely continue to be dampened. As the political environment and economic conditions have yet to improve, we think the BOT may reduce the policy rate further in the coming meetings, if the Thai baht does not weaken by too much.

u  Separately, Thailand’s international reserves rose for the first time in five months by USD2.4bn to USD191.3bn in February, as capital outflows abated amid the anchored expectations of quantitative easing (QE) tapering in the US. As a result, the Thai baht remained fairly stable in the month of March, gaining 0.3% against the USD during the month, following an appreciation of +1.6% against the USD in February. The Thai baht, in our view, is still vulnerable to financial market volatility if there is a global swing in risk appetite due to its relatively weak current account position amid the US Fed’s tapering of monetary easing.

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