Economic Highlights (Thailand) – 02/05/2014

Money Supply Moderated But Private Credit Growth Inched Up In March

u  The supply of broad money moderated to 6.4% y-o-y in March, the slowest pace in four months from a revised +7.4% in the previous month. This was reflected in the slowdown in net foreign assets, but mitigated partially by a pick-up in domestic claims during the month.

u  Meanwhile, private sector credit inched up to 8.8% y-o-y in March, from +8.6% in February driven by a pick-up in loans extended to businesses while private loans to households remained stable during the month. At the same time, deposits including bills of exchange eased to 6.8% y-o-y in March, from +7.7% in February, as deposits placed by local governments and other residential sectors moderated during the month. As credit growth outpaced deposits during the month, the banking system’s loan-to-deposit ratio rose to 95.9% in March, from 95.0% in February.

u  Going forward, inflationary pressures will likely remain benign amid the lack of demand-pull factors, as consumer confidence continues to remain dampened by the elevated household debt burden as well as the ongoing political uncertainties. As the political environment and economic conditions have yet to improve while the risk of instability in the financial markets is reduced. We think the Bank of Thailand will further reduce the policy rate by 25-50 basis points by end-2014.

u  Separately, Thailand’s gross international reserves slipped into a decline of USD0.6bn to USD167.4bn in March, after it rose by USD1.4bn in February, as the current account registered a lower surplus but mitigated by a smaller deficit in the financial account. As a result, Thai baht appreciated in the month of April by 0.6% against the USD during the month, bringing the year-to-date appreciation of 1.5% as at 29 April 2014. The Thai baht, in our view, is still vulnerable to financial market volatility if there is a global swing in risk appetite due to the US Fed’s tapering of monetary easing.

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