Thailand’s SET stock market plummeted after the United States Federal Reserve announced a huge hike in interest rates.
The highest hike in interest rates since 1994 when Bill Clinton was President.
On Thursday, Thailand’s SET Index closed at 1,561.10 points, down 32 points or 2.04%, in trade worth 97.7 billion baht, following a short relief rally after the rate hike faded.
Following the June meeting, US Federal Reserve chairman Jerome Powell said the Fed may need to raise rates a few more times by 75- or 50-basis points to contain soaring inflation.
On Thursday, the Fed increased interest rates by 0.75 basis points, the highest level since 1994, and hinted at an increase of 1.75 basis points over the next four meetings, causing fears of a recession and stagflation.
The Bank of Thailand is now expected to raise interest rates in line with other major central banks, raising more fear in the stock market.
Stock market fears
In response to rising stock market prices, Tisco Securities’ head of strategy Komsorn Prakobpol said the Fed will likely raise rates to 3.25-3.50% by the end of the year, up from its March forecast of 1.75-2.00%.
In March, the Federal Reserve raised its inflation forecast for 2022 to 5.2% from 4.3%. According to the University of Michigan, consumers’ long-term inflation expectations rose to 3.3% in May, the highest level since 2008, suggesting inflation is on the rise.
Interest rates are expected to rise to 3.5-3.75% in 2023 before falling to 3.25-3.5% in 2024, with long-term rates expected to rise slightly to 2.5% from 2.4%.
According to Mr. Komsorn, Tisco expects the Federal Reserves to hike interest rates by 75 basis points at its July meeting, 50 at its September meeting, and 25 at its November and December meetings.
Entering a recession
In his view, the imminent rate hikes are a risk to the global economy as rapid and aggressive rate hikes will likely trigger a recession which will also create fear in the stock market.
While, Bloomberg Economics predicts that the global economy has a 72% chance of entering a recession in early 2024, up significantly from April’s 45%.
According to KKP Research of Kiatnakin Phatra Securities, inflationary pressures will likely persist in the long run and the Bank of Thailand will probably raise rates to combat inflation. Thai inflation is projected to be 6.6% in 2022 and 3.1% in 2023 the brokerage said.
Thailand’s inflation rate jumped to 7.1% in May, the highest level in 14 years, exceeding economists’ expectations.
KKP has projected that the global economy could enter a recession by 2023 or 2024, before entering stagflation.