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.

Investors do not know where to safely invest, because the trade war could easily disrupt global supply chains, he said.

Supachai, who was also former secretary-general of the United Nations Conference on Trade and Development, made these comments as a keynote speaker at a seminar hosted by Thansettakij newspaper on Tuesday evening.

He reminded the audience that some observers had predicted that investors would relocate their factories to Southeast Asia, partly due to rising labour costs in China, and Vietnam has already gained from this.

However, he said, he was unsure if Thailand stands to gain from the US-China trade tensions, because it exports to both countries.

“Exports to the US might rise, but go down in terms of China,” he said.

Regardless of the trade war, he said, a further slowdown in global trade is feared, leading to a slower growth in the global economy, which in turn will affect every economy, including Thailand.

Global trade has only just shown some signs of recovery, after being sluggish for several years. Worldwide trade rose 7 per cent in 2017 and by about 5 per cent this year, he said.

He also voiced concerns that US President Donald Trump’s leadership would dismantle the World Trade Organisation (WTO) system, leading investors to lose confidence in the multilateral trading system.

The US government expressed dissatisfaction with the WTO dispute-settlement mechanism after it lost many trade disputes, and then tried to have the mechanism changed so that it would be more favourable for the US.

“If the US can do this, then the multilateral trading system will eventually come to an end,” he warned.

Rising global debt over the past few years is also a cause for concern, especially among developing countries, Supachai said.

Many countries have borrowed funds from overseas as they are facing an economic slowdown, resulting in lower tax revenue. Hence, he warned, high sovereignty debt could be hit by a late cycle of global growth and a hike in interest rates.

As for Brexit, he said it might not be such a debacle, though the European Union is unlikely to let Britain enjoy any benefits from leaving the union.

“In Thailand we will face more difficulties as our household debt remains high and any economic stimulus package will be less effective because most people prefer to pay off their debts first,” Supachai warned.

He also advised the next government to go ahead with the Eastern Economic Corridor investment project, noting that observers are still wondering if the government initiative will materialise. The project also involves investment in a high-speed railway linking three international airports and major cities, he said.

As well, he said, the next government should double its spending on research and development in the agricultural sector.

As Asean chair next year, Supachai said, Thailand should also push for progress in the Asean Economic Community (AEC), adding that the community was moving at a very slow pace, with very limited movement of skilled labour.

He also pointed out that Asean has created a non-tariff barrier on approximately 6,000 items, which is impeding trade and investment among member countries.

Supachai urged Thailand to push for a conclusion to free-trade negotiations under the Regional Comprehensive Economic Partnership, which consists of 16 countries.

The free-trade agreement, he said, will lead to more trade among members, as global trade could very well be adversely affected by trade war. Besides, he added, Asia needs to strengthen its supply chains.

Supachai also said that the next government should follow Malaysia’s example and retrain Thailand’s unskilled labour force.

In terms of education, he said universities should hire top experts from overseas to support teaching and research, and the wages of vocational-school graduates should match those of university graduates so more people will be encouraged to pick up a vocation.

“Thailand should also apply to become part of the WTO’s government-procurement agreement. This will create transparency and boost confidence, as our government-procurement process would meet international standards,” he added.

Overall, the Business Confidence Index (BCI) for last month, produced by the Federation of Thai Industries (FTI), edged up to 93.9 points from 92.6 in October.

“All aspects of the index, except business confidence in exports, have improved,” said Supant Mongkolsuthree, chairman of the FTI. “The improved areas consisted of total buying orders, total sales, production volume and business turnover.”

The business confidence index consists of data from 1,120 entrepreneurs from 45 industrial groups in Thailand.

“The BCI results have improved for two consecutive months, and are currently the highest in the past 66 months. They have recovered well after the slump in figures in August and September, reflecting the general trend of the economy,” said Montri Mahaplerkpong, vice chairman of the FTI.

In August, the index slumped to 92.5 points from 93.2 in July, according to the FTI, mainly resulting from the heavy rainfall and the US-China trade war.

Business confidence in exports for the next three months is predicted to come in at 109.3 points, a decrease from the predicted figures in the same period last year, which stood at 110, Montri said.

“This is largely due to the uncertainty of the 90-day halt in the US-China trade war. Thai manufacturers are still not confident that the agreed halt between President Donald Trump and Xi Jinping will lead to a long-term settlement in the current superpower trade conflict,” he said.

Even so, the month-on-month BCI figures regarding Thai exports have still been increasing. In November, the index was at 90 compared with 88.6 in October. This is due to the depreciating baht, which reduces the price of Thai exports, making them more competitive in foreign markets, he added. Manufacturers see a short-term opportunity to gain from the trade conflict through replacing goods affected by the tariffs in both the US and Chinese markets. However, over time, these markets will adapt to the shifted supply chain and competition in those markets will rise, according to Montri.

Meanwhile, he suggested that Thai manufacturers should look to boosting exports to Cambodia, Laos, Myanmar and Vietnam (CLMV) over the long-term. The CLMV subregion is the largest export destination for Thai products.

“Currently, up to 25 per cent of Thai exports go to the Asean region, making it the No 1 region for Thai exports. This is followed by exports to China, making up to 12 per cent of total exports and the US at 10 per cent,” Montri said.

  The chairman of the Federation of Thai Industry (FTI), Supant Mongkolsuthree, made that point and, in doing so, appears in alignment with the thinking in government circles on the first such rate increase in seven years.

Kobsak Pootrakool, the Minister to the Prime Minister’s Office, said the rate rise decided upon by the central bank’s Monetary Policy Committee (MPC) fell within its authority.

However, he said the action could hold back the country’s economic growth, coinciding with the preparations for a national election and with the doubts of the direction of the global economy. This is the main factor that the MPC and the BOT have to concern themselves with when making a decision to increase interest rates, Kobsak said.

Finance Minister Apisak Tantivorawarong said that, with the MPC acting to raise the key interest rate, the Finance Ministry has to find ways to support the economy. The higher cost of funding will directly impact economic growth and also the investment plans of the private sector.

“I do not agree with the reason to increase the interest rate made by MPC, but I have to find others way to reduce the effect from this policy, which will impact the country’s economy growth and also impact people’s purchasing power in relation to consumption,” Apisak said.

The MPC raised the policy rate by 25 basis points to 1.75 per cent in its meeting yesterday in a decision aimed at curbing risks to financial stability and making a start on building up policy space.

Five of the seven MPC members voted for the rise, with the other two wanting to keep the rate on hold.

As the prolonged low policy rate has supported the country’s economic expansion and kept inflation within its target framework, most members viewed that it was less necessary to depend on accommodative monetary policy, said Titanun Mallikamas, secretary to the MPC.

Most of the members viewed that the policy rate at 1.75 per cent will remain conducive to growth, while the other two members saw higher risks and uncertainties on the external front that could affect Thai economic growth over the coming period. They pointed to the need to assess certain impacts and the sustainability of the domestic growth momentum for some time.

The MPC added the phrasing “the need for accommodative monetary policy as in the previous period had reduced” in its statement, signalling the need for businesses and consumers to prepare for an upward trend in interest rates.

The Thai situation is similar to that of the United States in 2015-16 when the Federal Reserve put out signals over a long period before raising the Fed Funds rate after a prolonged period of low interest rates 2008. The start of the US rate rises had been expected and investors and the broader business sector had prepared themselves, Bank of Ayudhya’s Global Markets Group said.

Kasikorn Research Centre expects no significant impact on Thai expansion next year amid high liquidity in the Thai money market, while seeing that the MPC will continue its accommodative policy at least for the first half of next year.

The MPC is expected to assess the Thai economy in the coming periods before a possible further rate rise in the latter half of next year, the research house said.

Phacharaphot Nuntramas, senior director of Krungthai Bank’s global business development and strategy unit, expects the MPC to raise the policy rate to 2 per cent in the latter half of next year as the Thai economy may not overheat with the estimated low inflation.

Titanun said the economy has continued to gain traction driven by domestic demand, while external demand has slowed.

The economy would be subject to increased downside risks mainly on the external front, highlighted by the trade protection by the US and China, he said. This year, the estimate for export growth has been cut to 3.7 per cent from an earlier forecast of 5.5 per cent.

KTBST’s top picks in the Stock Exchange of Thailand (SET) for next year are Asia Aviation (AVV), Amata Corporation (AMATA), Bangkok Bank (BBL) and BGrimm Power (BGRIM).

KTBST, a brokerage firm, offers services in investment banking, private wealth management, mutual funds, derivatives trading and securities brokerage. It aims to launch an initial public offering (IPO) in 2019 for listing in the SET.

“Growth of the economy and the stock market have passed the peak, and we expect slower economic expansion next year, which will be reflected in a more volatile stock market,” Chatree Rojana-Arpa, executive vice president for strategy and product development at KTBST, said.

Chatree was speaking at a press conference in Taipei, addressing the 2019 stock market trends and economic outlook.

Economic growth has slowed down in the second half of 2018 mainly due to the ongoing US-China trade war, the signalling of the US Federal Reserve to increase interest rates and pressures on prices of commodities such as oil, Chatree said.

The trade war, in particular, has damaged the confidence of investors globally, leading to capital flows from the stock markets as reflected in the SET index dipping below 1,650 last month.

Chatree predicted the SET index to recover to between 1,700 and 1,750 points in the first quarter of 2019, saying the general election, scheduled for February, would boost consumption, investment and government expenditure, which in turn would stimulate economic growth and boost investors’ confidence.

Thailand’s GDP is predicted to grow by 3.9 per cent in 2019 with consumption expanding by 4.5 per cent, government expenditure 2.4 per cent and investment by 6.1 per cent if the next government continues with the populist economic policies, he said.

“Given our forecast of the SET trend next year, we advise investors to take fewer risks as there are lower return expectations. They should set up portfolios that have downside protection and expect a return on investment of approximately 10 per cent,” he suggested.

Two of the key sectors forecast to be overweight in 2019 are banking and construction, according to Chatree.

The banking sector is expected to be overweight because of the prospects of the Bank of Thailand increasing interest rates towards the end of 2018 and twice in 2019. The suggested SET stocks are Bangkok Bank (BBL) and Kasikornbank (KBANK), he said.

Meanwhile, the construction sector will likely be overweight in 2019 as a result of the government’s plan for infrastructure development and construction in the Eastern Economic Corridor. AMATA stock is expected to outperform in 2019, he said.