New FX forecasts, BoT independence under threat

We have finalised changes to our financial market forecasts following Donald Trump’s election victory. We think Asian currencies will weaken by 3-10% against the US dollar between now and the end of next year, with the biggest falls being in the renminbi (since China faces larger tariffs). Most countries may welcome weaker currencies – the exception is Indonesia.

The government is stepping up  pressure on the Bank of Thailand to loosen monetary policy. If this pressure prompts the central bank to cut interest rates at its December meeting, that would go some way towards mitigating the deflationary risks threatening the economy. Over the longer term, however, the government’s attacks on the central bank’s independence are a worry – there is a wealth of evidence showing that central bank independence is associated with better inflation outcomes.