Inflation fuels fears of foreign exit
Rate hikes could cause an exodus from the market
Stock analysts expect foreign funds to exit the Thai stock market after inflation hit a 13-year high of 7.1% in May as the Bank of Thailand faces rising prices, to potential increases in interest rates and an economic slowdown.
Pipat Luengnaruemitchai, chief economist at KKP Research, a research house of Kiatnakin Phatra Financial Group, said Thai inflation has yet to peak and is expected to continue rising for several months due to many external factors, in particular the rise in oil prices caused by the sanctions of European countries. on Russian energy supplies.
He said that although Thailand’s economy is expected to recover in the second half of the year, inflation is rising rapidly, eroding purchasing power, savings and the ability to repay debts.
Pipat said soaring oil prices would increase production costs and could cause companies to cut costs by cutting investment and laying off staff. Inflation will also drive up financial costs as global central banks all begin to tighten monetary policies.
“Even though Thailand is a food-exporting country, the country has a very high proportion of energy consumption and food in the consumption basket compared to other countries,” he said. “The effect of inflation on the population may be greater, especially on low-income people who consume more food and energy than wealthy people.”
In addition, Pipat said the country’s financial stability was being strained by energy price subsidies that were aggravating public debts.
The Bank of Thailand should find a way to support a slowly recovering economy without running the risk of increasing inflationary pressures.
Analysts at Krungsri Securities, Asia Plus Securities and Globlex Securities said inflation could lead to a slowdown in investment in the second half of the year as investors feared the central bank would come under pressure to raise interest rates.
The prospect of rate hikes would significantly alter market sentiment and encourage investors to sell stocks to reduce risk, leading to an outflow of funds from the Thai stock market.
Thailand’s central bank left interest rates unchanged at 0.5% on Wednesday, but Therdsak Thaveeteeratham, executive vice president of Asia Plus Securities, said the monetary policy committee would likely implement interest rate increases in later meetings this year to curb inflation.
He said global and domestic inflation rates are expected to remain on an uptrend as the baht continues to depreciate. On Wednesday, the currency stood at 34.46 baht to the US dollar, up 3.86% year-to-date.
Investors also see a strong chance of higher interest rates this year as the one-year bond yield is still above the policy rate by 0.5%, at 0.66%, or 16 basis points higher.
Therdsak said the increased risk of rising rates will cause funds to flow out of the Thai market.