Kasikorn Securities Issue an analysis of the story “Who wins and who loses if the Bank of England cuts interest rates?” According to expectations, the Bank of Thailand (BoT) will cut the interest rate by 25 basis points to 2.25% in the second half of 2024.
Ready to assess which business groups will benefit and be negatively affected by lower interest rates and the baht, which is expected to weaken to 37 baht per dollar.
Weak economic data may lead to easing measures.
Thai GDP contracted by -0.6% QoQ in Q4 2023 due to slowdown in private sector consumption and delayed fiscal budget.
“Thailand may slide into a technical recession if GDP continues to decline on a quarterly basis in the first quarter of 2024, despite the government speeding up the 2024 budget approval process two weeks earlier than originally scheduled (to April 3 from April 17 )”
However, from Kasikorn Securities' point of view it is expected that this may not be enough due to signs of a weak economy. This is reflected in the negative inflation rate for 4 consecutive months Thailand's inflation rate in January and the real interest rate is expected to reach 3.6% in 2024. As a result, economic stimulus measures from both fiscal and monetary policies are expected to increase in the short term.
Kasikorn Securities expects the Bank of Thailand (BoT) to cut interest rates before launching the government's digital wallet project. This is because the project may be postponed to the next financial year. Its size may be reduced due to legal obstacles.
“The Bank of England is expected to cut interest rates by 25 basis points to 2.25% in the second half of 2024, compared to market estimates of 2.25%. 2.35%/2.30%/2.25% in Q2/2024-4/2024.”
The baht may weaken to 37 baht per dollar if the ton bank cuts interest rates before the Fed.
The value of the baht against the US dollar has decreased by 4.7% since the beginning of the year to 36.03 baht/US dollar. This is due to the market delaying the Fed's interest rate cut from March. To the second quarter of 2024 compared to the interest rate reduction carried out by the Bank of Commerce in the second half of 2024.
Therefore, the baht may weaken to 37 baht per US dollar if the Bank of Commerce cuts interest rates before the Fed, in Kasikorn Securities' view.
Winners/losers from interest rate cuts
A 25 basis point drop in interest rates should lead to a 1.5% to 7.6% increase in earnings for the financials, petrochemicals, tourism, transportation, housing, packaging, ICT and public utilities sectors. Which has a high debt burden
A 25 basis point drop in interest rates would reduce the insurance/banking group's earnings by -3.8%/-7.7% of investment returns. Low interest margin (NIM)
Winners/benefits from the depreciation of the baht
The weak baht should have a positive impact on exporters. (Personal Products, Petrochemicals, Electronics, Agriculture and Food) and companies with assets denominated in US dollars, with earnings rising by 4%-90%.
But it will have a negative impact on importers. (energy and packaging) and companies with USD debt (utilities) with a downside gain of -1.2% to -2.8% per 1 baht/USD. Which has decreased in value to the baht
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