Thailand's government unlikely to cut rates amid 6% real GDP forecast

No change in monetary policy yet, says analyst.

According to UBS, following the strength in Q4 growth, UBS re-iterates its view that the BoT policy rate should not be cut in H1 2013 and ought to be raised in H2 2013. UBS forecast no change in monetary policy at the 20 February BoT MPC meeting.

UBS adds, Thailand's economy expanded rapidly on the quarter in the fourth quarter, against consensus expectations. This should add weight to the arguments of the hawks within Thailand's central bank. BoT hawks have been under pressure in recent weeks to allow easier monetary policy in order to forestall baht strength.

Here's more:

The upwardly revised seas. adj. real GDP expansion of 1.5% qoq in Q3 and 3.6% in Q4 compare to widely held potential growth estimates of circa 1.1% - implying higher capacity utilisation. That notion is supported by high frequency data on industrial sector capacity utilisation, hotel occupancy and the unemployment rate.

This, buoyant asset prices, inflation above 3% and the narrower current account surplus all argue against lower policy rates. Higher policy rates may need signs of stronger exports on top of domestic economic strength. We expect the BoT to hike rates in H2 2013. Stronger exports would also diminish concerns surrounding the baht strength that we think should be forthcoming.

Thai real GDP growth was strong in Q4 2012. Some of this momentum will likely be given back in H1 2013, but we raise our annual real GDP growthforecast for 2013 to 6.0% because of the strong base implied by the Q4 data.

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