The Thai baht and the Philippine peso both gained ground on Tuesday, as traders flocked to safe-haven assets in anticipation of monetary policy loosening, despite local central banks maintaining their dovish posture.
The baht and the peso both advanced 0.4% against the dollar, with the latter reaching a near six-week high, while most Asian currencies were pretty static.
Thailand’s headline consumer price index (CPI) increased by 5.73% in March, the quickest rate in 13 years, beating expectations due to higher goods and energy prices, according to the commerce ministry.
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“Such high inflation readings will not put the Bank of Thailand (BoT) under any inflationary strain,” said Poon Panichpibool, Markets Strategist at Krung Thai Bank.
“The BoT will stay supportive and hold the policy rate at 0.5% unless there is a need to stem substantial capital outflows, which is unlikely given that the market appears to have priced in the aggressive rate hike by the US Federal Reserve.”
Inflation in the Philippines was similarly hot in March, with the CPI reaching 4%, smashing a Reuters poll of 3.7% to set a six-month-high.
The Central Bank stated that if inflation expectations were to spiral out of control, it would be willing to intervene.
Analysts at Barclays boosted their inflation projection for 2022 to 4.1% from 3.7%, still lower than the 4.3% forecast by the Bangko Sentral ng Pilipinas (BSP), and said they expect the BSP to raise rates for the first time in the second half of fiscal 2022.
“We expect the BSP to remain on hold through the first half of fiscal 2022, despite our prediction of higher inflation, as downside risks to the global economy and the still-nascent domestic recovery are expected to balance supply-side price pressures,” Barclays wrote in a note.
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Oil prices rose as supply uncertainty loomed after the West announced further sanctions against Russia in response to alleged war crimes committed by its soldiers in Ukraine, while nuclear talks with Iran paused.
To account for the impact of Russia’s invasion of Ukraine, the World Bank lowered its growth prediction for East Asia, particularly Thailand. Thailand’s GDP is expected to increase 2.9% this year, down from 3.9% predicted in December.
“While it is typical for agencies to lower Thailand’s GDP growth due to the current geopolitical context,” Panichpibool added, “we still expect a greater recovery in 2023, with GDP growth likely reaching 5.1%”
The yield on US Treasury notes stayed unchanged, while the 2-year/10-year curve remained inverted, indicating the possibility of a recession. Singapore’s 10-year bond yields were barely changed, dropping to 2.326%, while Indonesia‘s benchmark bond yields fell to 6.747%
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