The warning came from experts at the central bank, Siam Commercial Bank (SCB) and Phatra Securities. 

For the first time in seven years, the BOT hiked the interest rate by 0.25 per cent on Wednesday, boosting it from 1.5 to 1.75 per cent. 

“If economic growth remains strong in 2019 and inflation levels are maintained, I believe the BOT will increase interest rates once more in 2019,” BOT senior director Don Nakornthab said.

He was speaking at a panel discussion, “Structure of Thai Stocks: Will They Plummet or Continue to Grow?”, organised by The Nation’s sister newspaper Krungthep Turakij. 

The central bank has predicted that Thailand’s GDP will grow by 4 per cent in 2019 with 1 per cent inflation. 

Don said one of the key risks in raising the interest rate again in 2019 is its likely impact on inflation. However, he added, general economic growth takes precedence over inflation, and if the former remains strong, the BOT is likely to hike the rate next year, though it is unlikely to do so more than once. 

This is in line with a forecast from SCB’s Economic Intelligence Centre (EIC). 

“We expect the BOT to increase interest rates in 2019,” concurred Yunyong Thaicharoen, first executive vice president and chief of the EIC. However, he said, the 2019 rate hike will be modest compared to the past two economic cycles. Previously, interest rates were often increased by 1 or 2 per cent but, given the slower economic growth expected in 2019 and low inflation due to falling oil prices, SCB expected the BOT to only hike the interest rate modestly, Yunyong said. 

The biggest risk factor to the economy from the rate increase will be the impact it has on people who are in debt, he said. 

“Household debt in Thailand poses a significant risk to the economy. The total value of household debt in the country now makes up 80 per cent of GDP,” Yunyong warned. “So even the slightest increase by the BOT may significantly increase the financial burden on consumers.” 

Piphat Luengnaruemitchai, assistant managing director of Private Wealth Management Research at Phatra Securities, called hikes in interest rates “a double-edged sword”. 

“While higher interest rates will discourage households from borrowing more, it will also hurt those who are already in debt. The number of debtors has been on the rise in recent years,” he said. 

In a separate interview, Chatchai Sirilai, president of the Government Housing Bank (GHB), said his bank would do its best not to increase interest rates this year. 

“We will wait to see the market in the first quarter of next year. If other banks increase their interest rates, we will have to follow the market trend because our funding costs will rise,” he said. However, he added, the bank will increase both lending and depositing rates to strike a balance. 

He also said that, if GHB does decide to increase the interest rate, it would be only half of the BOT rate increase this year – no more than 0.125 per cent. He added that GHB would try to avoid increasing monthly instalments, though borrowers might find themselves having to repay debts over a longer period. However, he warned that some commercial banks could be forced to increase monthly instalments. 

Chatchai added that GHB expects mortgage loans to rise by 7 per cent to Bt210 billion this fiscal year, though he admitted that higher interest rate trends next year and BOT measures to curb speculation might adversely affect mortgage lending next year. 

Meanwhile, Chatchai Payuhanaveechai, president of Government Savings Bank, said his bank will increase interest rates for time deposits by 0.25 per cent from December 24. The previous time-deposit rates lie between 0.90 per cent and 2 per cent. 

As for lending rates, he said, his bank would try to delay the increase for as long as it can. 

Those who have taken loans on fixed rates should not be affected, while at least half of the 300,000 mortgage holders whose loans are on floating rates should not be affected for the time being, he said. Small business operators who have borrowed at a fixed rate of between 0.5 and 1 per cent will also not be affected for now, he added. 

Source: http://www.nationmultimedia.com/detail/Economy/30360857