Photographer: Julian Abram Wainwright/Bloomberg

Rate Surprise Is Least of Worries in Southeast Asia’s Risky Bets

  • Thailand, Philippines set to keep interest rates unchanged
  • Both countries are grappling with rising political uncertainty

In Southeast Asian nations facing the biggest political risks, at least one thing investors don’t need to worry about are central bank surprises.

That’s the consensus from economists predicting policy makers in Thailand and Philippines will stick to their unchanged monetary policy stances this week in the face of heightened uncertainty following the death of Thai King Bhumibol Adulyadej and President Rodrigo Duterte’s foreign policy shift away from the U.S. toward China.

“For these two central banks, there is broadly speaking, enough market confidence in the central bank itself, not so much in the politics,” said Julian Wee, a Singapore-based senior market strategist at National Australia Bank Ltd. Philippines is in a good position with benign inflation, while Thailand is facing a “liquidity trap, so rate cuts wouldn’t do much for the economy,” he said.

All but one of the 23 economists surveyed by Bloomberg expect the Bank of Thailand to keep its policy rate stable at 1.5 percent on Wednesday, while for the Philippines, all 16 economists polled said the benchmark rate would remain at 3 percent on Thursday.

In Thailand, the central bank will need to steer the economy through rising market volatility following the death of the king, who was seen as a source of stability in the country. A yearlong mourning period threatens to curb growth on entertainment and other social spending in a country dependent on tourism. Foreign investors pulled out of Thailand stocks at the fastest pace this year in October.

‘Consistent’ Policy

The Bank of Thailand has kept its key rate unchanged since June 2015, turning to fiscal policy to take the lead in spurring the economy. After more than a year of negative inflation rates, consumer prices have risen steadily since April and gained 0.3 percent in October from a year earlier.

“It’s good that our central bank is pretty consistent with their rate decision amid uncertainties in the economy now,” said Thanomsri Fongarunrung, an economist at Phatra Securities Pcl in Bangkok. “They have sent out clear signals that they want to save their bullets and use it when it’s really necessary.”

The Philippines and Thailand have the lowest interest rates in Southeast Asia after adjusting for inflation, indicating reduced room to lower borrowing costs.

Both central banks have also avoided surprising the markets in the past. Bangko Sentral ng Pilipinas generally communicates any potential change in monetary policy in advance and the last time the Bank of Thailand took unexpected action was in April 2015.

In the Philippines, risks have been rising because of Duterte’s violent crackdown on crime and his outbursts against the U.S., a military ally, raising concerns for investors in the $20-billion business-process outsourcing industry, which is dominated by American companies.

Bangko Sentral ng Pilipinas has kept its key rate unchanged since lowering it in May as part of an overhaul of its policy framework. With the economy growing at 7 percent and the peso under pressure, the bank’s next move may be a rate increase. Inflation was unchanged at 2.3 percent in October, remaining inside the 2 percent to 4 percent target range.

“We still think that the next move will be a hike, but not just yet, rather in early 2017, more likely,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “Growth momentum remains robust while inflation is likely to continue inching higher.”

— With assistance by Michael J Munoz, and Karl Lester M Yap

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