SET plunges as Fed hikes rates hard

An investor monitors stock prices displayed on an electronic board. (File photo)

The Thai stock market fell on Thursday, after the United States Nasdaq futures market tumbled more than 2% on concerns over the economic impacts of aggressive rate hikes from the Federal Reserve.

The SET Index closed at 1,561.10 points, down 32 points or 2.04% on Thursday, in trade worth 97.7 billion baht, in line with global bourses after a short relief rally after the rate hike faded.

Fed chairman Jerome Powell said in a statement after the June meeting that the group might have to implement a few more 75- or 50-basis-point rate hikes to stave off soaring inflation.

The Fed hiked interest rates by 0.75 basis points on Thursday, the highest since 1994, and hinted at increasing 1.75 basis points over four more meetings this year, stoking fears of a recession and stagflation. On the domestic front, the Bank of Thailand is expected to hike rates in line with other major central banks.

Komsorn Prakobpol, head of the strategy unit at Tisco Securities, said the trend in interest rates indicates the Fed will likely raise rates to 3.25-3.50% by the end of the year to contain rising prices, up from the March forecast of 1.75-2.00%.

The Fed raised its inflation forecast for 2022 to 5.2% from 4.3% in March. Consumers’ long-term inflation expectations, according to the University of Michigan, rose to 3.3% in May, the highest since 2008, suggesting a clear uptrend in inflation.

For 2023, the Fed is projected to raise interest rates to 3.5-3.75% before a reduction to 3.25-3.5% in 2024, with long-term rates expected to rise slightly to 2.5% from 2.4%.

Mr Komsorn said Tisco expects the Fed to raise interest rates by another 75 basis points at its July meeting and 50 points at the September meeting, before 25-point hikes at the November and December meetings.

He said the imminent rate hikes pose a risk to the global economy as rapid and aggressive rate hikes will likely cause a recession. According to Bloomberg Economics, the global economy has a 72% chance of entering a recession in early 2024, significantly up from April’s 45%.

KKP Research of Kiatnakin Phatra Securities said inflationary pressures will likely persist in the long term and the Bank of Thailand is likely to hike rates to curb inflation. The brokerage projects Thai inflation to tally 6.6% in 2022 and 3.1% in 2023.

In May, Thai inflation jumped to 7.1%, the highest level in 14 years, exceeding economists’ expectations.

KKP said the global economy is at risk of stagflation before it enters a recession in late 2023 to 2024.