Thailand growth risks on the rise: OSK-DMG

This led the Thai central bank to cut its growth outlook for 2012 and 2013 to 5.7% and 5.0% respectively.

Even so, OSK-DMG is maintaining a more bullish growth forecast of 6.0% for 2012 and 5.5% for 2013 given what it sees as a possible upside to inflation.

Here's more from OSK-DMG:

There were no changes to the Bank of Thailand’s (BoT) key policy rate this afternoon, in line with our and market expectations. The central bank kept the one-day repurchased rate steady at 3.0% for the fourth consecutive meeting. This decision reflected the central bank’s optimism that the Thai economy would continue to hold up well this year under the combined action of fiscal stimulus and accommodative monetary policy despite the evolving crisis in the Eurozone.

Nevertheless, the central bank did cut its growth outlook for 2012 and 2013 on the back of the uncertain global economic environment, which it expects to impact on export growth this year (new export forecast: 7.0%). It now expects the economy to grow by 5.7% and 5.0% in 2012 and 2013 respectively from 6.0% and 5.4% previously. We however are keeping to our growth forecast of 6.0% and 5.5% for 2012 and 2013 respectively for the moment.

But we do acknowledge that the risks to growth have increased given the inability of the Eurozone to solve its debt problems, which is likely to make itself felt globally via weaker demand for exports and through the financial markets. The central bank also lowered its 2012 inflation forecast to 2.9% from 3.3% (vs. our forecast of 3.6%) on the back of moderating inflationary pressures (inflation averaged 2.5% in 2Q vs. 1Q’s 3.6%). However, we think there could be upside to inflation given the strong growth momentum, underpinned by the government’s spending plans, and the impact from the minimum wage policy.

It now seems that the ground is being prepared for the BoT to cut interest rates to support growth should GDP underperform. The pressure to cut the policy has already begun as reflected in the two votes during the policy meeting for a 25 bps cut. We still think that it is unnecessary to provide further support to the economy via a rate cut given that the risks to growth are not significant (economy would still be growing above 5.0% this year) and that inflation could still flare up, especially if real rates turns negative. We continue to expect the central bank to hold its key policy rate steady at 3.00% for the rest of the year, but could unleash its policy weapons should the external environment deteriorate threatening domestic growth.