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Thailand: Thai Market Strategy - Repo Rate-hike playbook

  • Repo Rate looks set to rise today, due to accelerating core CPI

  • Higher borrowing costs will dampen business and spending

  • Short-term trading opportunities open on Bank sector

Poramet Tongbua
Poramet Tongbua

Equity Research Analyst

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Bualuang Securities
10 August 2022

The Monetary Policy Committee (MPC) is almost certain to raise its policy interest rate by 25bps to 0.75% at its meeting today, given that high headline inflation is now feeding into core CPI (which rose from 2.28% in June to 2.99% in July). A higher One-day Repurchase Rate translates into higher borrowing costs, which squeezes some indebt-ed firms’ earnings. While the profits of Construction and Tourism plays appear to be the most exposed, the Bank sector will benefit (the scope for upside hinges on lending rate policy changes and the loans/deposits structure of each bank). We have compiled lists of the likely winners and losers of higher interest rates.

Repo Rate looks set to rise today, due to accelerating core CPI  

Although the July headline Thai Consumer Price Index (CPI) of 7.61% was lower than the consensus estimate of 7.8% (and down slightly from 7.66% in June), core CPI was 2.99%, up from 2.28% in June and clearly above the BOT’s 2% core target. So today we expect the MPC to raise the Repo Rate by 25bps to 0.75% and believe that the rate is likely to be 1-1.25% by YE22 (two or three 25bps rises in 3Q-4Q22) and—assuming that high core CPI persists—2% by YE23 (a series of 25bps rises through the year).