Deputy Prime Minister Niwattumrong Boonsongpaisan said on April 22 that the economy could contract this year if the political standoff persists late into 2014.
The central bank held its key rate on April 23 after cutting in March and only two of 21 analysts surveyed by Bloomberg predict another reduction in 2014. The baht is forecast to drop 2.9 percent by year-end, according to the median estimate in a Bloomberg survey.
“Rating downgrades are a real risk, as a lack of a functioning government creates political uncertainty that Thailand could get punished for,” Santitarn Sathirathai, head of economics for Southeast Asia and India at Credit Suisse Group in Singapore, said in an April 16 interview. The inability of the government to deliver much infrastructure spending is slowing growth, he said.
Economic expansion is “expected to be lower than the previous assessment,” assistant governor Paiboon Kittisrikangwan said in a statement released after the rate decision this week.
The government’s caretaker status after elections in February that have since been annulled limits its ability to borrow, and the central bank is likely to hold rates because it wants to “keep its powder dry” in case of an emergency, according to Credit Suisse.
Yield forecast
The Bank of Thailand said on March 21 that gross domestic product would increase 2.7 percent in 2014, compared with 2.9 percent last year and 6.5 percent in 2012.
The nation’s local-currency debt returned 4.3 percent over the past six months, according to a Bloomberg index, as overseas investors pumped money into the securities on the prospect of interest-rate cuts. Baht-denominated debt has risen 1.2 percent so far in April, after gaining in six of the seven previous months.
The yield on Thailand’s two-year sovereign bonds will climb from 2.09 percent to 2.5 percent by year-end, according to Nattariya Wittayatanaseth, a Bangkok-based analyst at Kasikornbank, Thailand’s fourth-largest lender by assets.
The five-year yield will rise 25 basis points to 3.35 percent and the 10-year rate will increase 60 basis points to 4.1 percent, she said in an interview on Thursday.
The protests against the government of Prime Minister Yingluck Shinawatra started in late October and have claimed 25 lives. February’s election was invalidated by the Constitutional Court last month on the grounds that it didn’t take place across the country on the same day, which was impossible as protesters blocked voting in some areas.
Rating warnings
The Election Commission will discuss new dates for a nationwide vote with Yingluck on April 30, Secretary-General Puchong Nutrawong said in Bangkok this week. If elections can be held in July, the economy could expand 2 percent this year, said Deputy Prime Minister Niwattumrong.
Japan Credit Rating Agency revised its outlook on Thailand to negative from stable on April 2, while Moody’s Investors Service and Fitch Ratings warned last month that a political deadlock that extends into the second half could prompt them to reassess their view. The two companies assign Thailand their third-lowest investment-grade ranking.
“A prolonged period of significantly below-trend growth would be credit-negative,” Steffen Dyck, an analyst at Moody’s in Singapore, said in an April 23 interview. The invalidated election “heightens the risks of more widespread protests from pro- and anti-government camps, and makes it increasingly unlikely we will see an elected government by July,” he said.
Inflation quickening
Pioneer Investments is “relatively bearish” on Thailand as it guards against the political uncertainty, said Hakan Aksoy, a London-based fund manager who helps oversee about $4.7 billion of emerging-market debt.
“Although inflation is picking up slightly, we think the central bank will stay on hold and move behind the curve because of the slow growth,” he said in an April 23 e-mail interview.
Consumer prices probably rose 2.3 percent this month, compared with 2.11 percent in March according to the median estimate of analysts surveyed by Bloomberg before data due May 1. That would be the fourth month inflation has accelerated.
Thailand’s net debt supply has fallen 47 percent from a year earlier because of capital spending delays, Standard Chartered Singapore-based analyst Danny Suwanapruti wrote in a March 13 report. Overseas investors hold 16 percent of the country’s sovereign securities at the end of March, compared with 34 percent in Indonesia, official data show.
Baht weakens
Neuberger Berman Group, which manages $247 billion of assets globally, holds more Thai debt than the industry benchmark, according to Prashant Singh, lead portfolio manager for Asian emerging-market debt in Singapore.
“We expect local bonds to continue performing well,” he said in an April 23 interview. “With growth weak, inflation benign, the supply outlook favorable and offshore positioning relatively light, the environment remains conducive.”
The baht has declined 3.8 percent since the protests began on Oct. 31 to 32.35 per dollar on Thursday, data compiled by Bloomberg show. That’s the biggest drop among the 11 most-traded Asian currencies after Japan’s yen.
The cost of insuring Thailand’s debt against default using five-year credit-default swaps rose 14 basis points to 120 over the same period, according to CMA.
It has fallen since reaching a 19-month high of 170 on Jan. 27 at the height of the protests. Anti-government demonstrators removed blockades at four major intersections in early March and the government ended a state of emergency on March 19.
“A protracted political stalemate like the one in Thailand is highly unpredictable in its resolution and timing, so some risks remain,” Agost Benard, a credit analyst at Standard & Poor’s in Singapore, said in an April 23 interview. “We hope that a fully functioning government will be in power some time in the second half.”
Source : Jakartaglobe
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