BANGKOK: Thailand maintains its 5% export growth target this year. Note that, on sequential terms, there has been no improvement in export growth at the end of 2015. Given the 5% contraction last year and zero growth in both 2013 and 2014, even a 5% export growth this year would still imply that there is no export growth for 4 years running.
“Our forecast is lower at 3%, with risks towards the downside”, notes DBS Group Research. The Bank of Thailand (BOT) has been tolerant of a weaker baht, in an effort to boost export growth. That the term of trade index has gone up by 15% since mid-2014 might have been an encouraging development for the BOT. The problem is that bulk of this improvement has been driven by the sharp fall in crude oil price. Indeed, total imports have also shrunk by 10% last year, partly on the back of lower oil price.
If the authorities were to go all out to boost export growth, there could be pressure for the BOT to trim interest rates further, to facilitate an even weaker baht. Presumably, there is room to lower interest rates, since the recent fall in oil prices continue to fuel deflationary pressures in the economy.
The likelihood for another rate cut by the BOT would have been high if not for the fact that domestic private sector demand remains rather weak. Excessive weakness of the baht may only weigh on confidence even further, which is something that the BOT may want to avoid for now.
