19 June 2018
Thailand: Expect no monetary policy support for baht

The lack of interest rate policy support and deteriorating external trade balance suggest that the Thai baht will remain under weakening pressure. We revise our USD/THB forecast for end-2018 to 33.8 from 32.3

A big question for the markets this week is whether the Bank of Thailand tweaks monetary policy at the forthcoming meeting on Wednesday (20 June) to support the Thai baht (THB). In its biggest single-day depreciation in more than a decade, the THB weakened by 1.4% to 32.7 against the USD last Friday. This takes the pair through our 32.30 forecast for the end of this year, which we now revise higher to 33.8 on our view that a continued deterioration in the external trade balance will be the key negative for the currency.

Philippines: Worker remittances bounce back

Overseas Filipino Worker cash remittances jumped by 12.7% in April but the amount is still short of $1.3 billion to cover the April trade deficit. This is keeping the Philippine peso (PHP) on the defensive  

Despite the strong rebound of remittances, PHP will likely remain on the defensive

Overseas Filipino Worker (OFW) remittances bounced back from the 9.8% year on year drop in March. Remittances amounted to $2.3 billion, which is 12.7% higher from a year ago. Base effects partly explain the strong rebound.

  • Remittances from the US were 12% higher YoY from a drop of 4.7% in March and 1.1% in April 2017.
  • Remittances from Asia also recovered with a 21% YoY increase, as remittances from Japan and Singapore bounced back from YoY drops in March (Singapore saw a 26% drop in April 2017).
  • Remittances from Europe rose 14% following a 9% drop in March and a 6% drop in April 2017.

These three major hosts account for 69% of total remittances for April and posted growth of 15%, bouncing back from a 3% drop in April 2017 and a 5% drop in March.

  • Remittances from the Middle East were 6.6% higher from a year ago, bouncing back from a 13% drop in April 2017 and a 23% drop in March.

The 4M cash remittances amount to $9.4 billion, 3.5% higher YoY. These cash remittances fall short in financing the April trade deficit of $3.6 billion and the 4M trade deficit of $12.2 billion. We expect this shortfall to continue to be the norm, which is the underlying weak fundamental for the Philippine peso. We expect this shortfall to reach $16 billion this year from last year’s shortfall of $13 billion. Outsourcing revenues have to grow faster, and together with capital flows will moderate PHP’s weakening tendency. Without monetary policy support, PHP could fall to a fresh 12-year low.

Malaysia: Food, transport to boost inflation in May

Inflation will stay low throughout 2018 due to a cut in the Goods and Services tax (GST). This, along with strong growth and a resilient currency, rules out the need for a central bank (BNM) policy change

Inflation for May is due

Malaysia’s consumer price data for the month of May is due on Wednesday 20 June. Inflation has surprised on the downside in the first four months of 2018 and another such surprise is likely. The consensus forecast is for a rise to 1.9% year-on-year in May from 1.4% in the previous month. But we are below consensus with our 1.8% forecast.

Most of the acceleration in inflation will be from the transport CPI component, which is due to a double whammy of the low base effect and the pass-through of higher global oil prices. Food, the other key CPI component, will also see some upward pressure from a surge in demand during the Muslim holy month of Ramadan, which started on 17 May. Among other seasonal factors in May is the quarterly adjustment in housing rentals, which have been mostly upward.

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Good MornING Asia - 19 June 2018

A key question for the markets this week is whether the central banks of Thailand and the Philippines will tweak monetary policies to support their currencies

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