- Banking
- Wealth
- Privileges
- NRI Banking
- Treasures Private Client
Related Insights
The US Fed’s rate cut boosted the US dollar and rates in overnight trade, adding to the discomfort of the regional central banks. ASEAN-6 currencies have been on the backfoot since October, with additional build-up in expectations that CNY might be used as a part of the policy kit to offset the impact of potential hike in tariffs proving to be an headwind. In this light, it is not surprising that the ASEAN-6 central banks remain on a cautious footing.
The Bank of Thailand (BOT) unanimously maintained its policy rate at 2.25% during its final meeting of 2024 on Wednesday – the first such unanimous decision in about a year. Despite flagging increased external uncertainties, policymakers assessed that the current rate was consistent with near-potential economic growth, inflation recovering towards the lower-end of its 1-3% target, ensuring long-term macro-financial stability, while preserving policy space. Our baseline view is for the BOT to hold its policy rate at 2.25% in 2025, but with considerable downside risks. A sharp escalation in geopolitical and trade tensions under Trump 2.0 could significantly slow Thai exports and investments, at a time when domestic credit metrics are deteriorating. This could lead to weaker-than-forecast economic growth and headline inflation in 2025 (latest BOT projections are at 2.9% and 1.1%, respectively, in 2025, vs. 2.7% and 0.4% in 2024), potentially forcing the BOT to utilise its policy space to mitigate the downturn.
Bank Indonesia also extended its pause at its monthly rate review on Wednesday. Indonesia’s year-to-date inflation average stands at 2.4% YoY vs 3.8% in the comparable period a year ago. Despite a small uptick in November’s core inflation to 2.3%, there was a broad-based slowdown amongst the other sub-categories. This together with a slight deceleration in 3Q’s growth ticked the box for the BI to retain a dovish bent, but weakness in the currency is a bigger bother for policymakers, in the face of US-driven uncertainties. Markets await the inauguration of the new US President to gauge the direction on tariffs etc. Given this mix, BI erred on the side of caution and keep the benchmark rate on hold this month. Separately, BI plans to buy at least ~IDR150trn worth bonds in the secondary market in 2025 to replace ~IDR100trn Covid-era bonds that mature next year.
The government, meanwhile, plans to proceed with the 1% increase in the VAT rate to 12% in 2025, along with stimulus measures to soften the impact, like exemptions on staples, electricity tariff cuts, incentives for labour intensive sectors and VAT exemption on few property sales etc. The government treads a fine line between its push to improve tax collections but is also mindful of the need to preserve the purchasing power of low-income households, given the regressive nature of indirect taxes. With staples and other selected categories likely to be kept outside the ambit, the inflationary impact on inflation will be less pronounced than previously estimated (~0.2-0.3pp). Demand faces headwinds in the near-term, as signaled by tepid trends in sentiments, retail sales and consumption loan growth.
The BSP meets today and might signal caution after today’s cut. Peso’s slippage on year-to-date basis is not expected to deter the BSP from cutting rates. Inflation has averaged 3.2% yoy in the first eleven months of the year, within the 2-4% target range. Uptick in Nov’s inflation to 2.5% from Oct’s 2.3% was mainly driven by higher food, owing to destructive typhoons during that period. Barring that price pressures are neither broad-based nor threatening at the juncture. Growth meanwhile has been on a softer footing, 3Q’s 5.2% marked the slowest pace of increase in a year, pushing the World Bank to trim its GDP forecast for 2024. Notwithstanding US-led uncertainty, the BSP is expected to lower rates this week, but keep an eye on the US Fed’s forward-looking commentary to gauge the path ahead.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.