After the 'Fed' announced that inflation could rise above 2%, U.S. bond yields increased, and gold prices fluctuated. This is something Thailand needs to monitor in the long term as we may see fund flows into ASEAN and Thailand. Additionally, the Thai baht has started to strengthen, which may not bode well for the Thai economy.

Global investment markets at the end of last week were in a phase of 'adjustment' after being somewhat confused by the 'major shift' in the monetary policy targets of the U.S. Federal Reserve, or 'Fed'. Although some predictions had been made, the moment 'Jerome Powell', the Fed Chair, announced the use of an 'average inflation target', allowing for 'inflation' to be more flexible and to rise above 2% at certain times, instead of strictly keeping it below that level, the market interpreted that the Fed's policy interest rates would likely remain low, close to 0%, for a long time, at least not below 3-5 years.

After the press conference, the yield on U.S. government bonds, particularly the 10-year bond, surged by about 9.5% due to bond selling on Thursday night, reaching 0.754%. It then softened slightly to around 3.04% due to buybacks, closing at 0.731% on Friday night. Similarly, gold prices experienced significant volatility, dropping by $25.43 per ounce or 1.3% to $1,929.20 per ounce on Thursday, before rebounding to close at $1,964.50 per ounce on Friday, an increase of about 1.83%, while the dollar continued to weaken.

As for the impact on 'Thailand', we need to keep an eye on how things will unfold in the future. However, if asked whether it affects Thailand's monetary policy, the Bank of Thailand (BoT) has clearly stated that 'it does not affect us' because Thailand's monetary policy framework has used 'flexible inflation targeting' since 2000, allowing for some deviation from the target while keeping the annual average within the framework, which is not much different from the Fed's 'average inflation target'.

Nonetheless, the aspect to watch in the future is the impact on the baht and capital flows. The signals coming from the 'Fed' indicate that policy interest rates will remain 'low' for a long time while the Fed continues its unlimited quantitative easing measures. It is certain that in the future, some funds will seek higher returns in riskier assets, leading to the possibility of increased 'fund flows' into the ASEAN region, including Thailand.

Regarding the 'Thai baht', we can see that it has 'started to strengthen' rapidly after the Fed's press conference, closing at 31.14-31.16 baht per dollar on Friday, compared to the weakest level earlier in the week at 31.63 baht per dollar, indicating a strengthening of about 1.5%. Looking ahead, most economic research agencies estimate that the baht will continue to strengthen, which we see as not beneficial for the Thai economy, especially at a time when we need to rely on exports to help revive the country and are preparing to welcome foreign tourists. Therefore, a strengthening baht is unlikely to be good for the Thai economy.

SOURCE : www.bangkokbiznews.com