THB Thermometer. March A member of MUFG, a global financial group

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1 THB Thermometer March 2018 A member of MUFG, a global financial group

2 Foreign Exchange Market Update Recap : February The dollar consolidated against most other currencies after signs of potential acceleration in U.S. inflation came into light. Federal Reserve Chair Powell s optimistic remarks on the economy also supported. Nonetheless, safe haven plays gained the most traction as concerns of rising rates ignited broad equity selloffs, leaving the yen as an outperformer. Performance Depreciation The euro weakened as the dollar s rebound and rising U.S. yields encouraged investors to lock in profits. The single currency briefly notched 38 month highs but failed to hold on to its gains due to simmering uncertainty about the European Central Bank s monetary policy and Eurozone politics. Outlook Gradual Appreciation Given the strong economic fundamentals in the Eurozone, we continue to expect the ECB to eventually adjust their guidance toward a shift away from policy accommodation, supporting the euro albeit to a more moderate extent compared to last year. Performance Appreciation The yen rallied broadly as fears of higher inflation in the U.S. sparked risk aversion and downward correction in global stock markets. Expectations the Bank of Japan would maintain its ultra loose policy did little to weaken the safe haven currency. Outlook Limited Appreciation Our yen appreciation view remains unchanged. BoJ Governor Kuroda stated the central bank would consider exit plans before March On the other hand, even as policy divergence between the BoJ and other central banks becomes clearer, we think policy options at the BoJ are limited, and of course any further easing step carries a diminishing impact to depreciate the yen on a sustained basis. Volatile yet still orderly moves in financial markets should help keep the yen on modest appreciation path going forward. Reuters EUR/USD Euro fell 1.8% in Feb USD/JPY Yen surged 2.3% in Feb 2

3 Foreign Exchange Market Update Recap : February Slight Baht Depreciation Alongside broad weakness of regional currencies amid the correction lower in equity markets earlier in the month, the baht depreciated modestly in volatile trade. Indeed, the Thai currency proved relatively resilient and briefly touched its strongest level since November 2013 as financial markets stabilized somewhat while Thailand s hefty current account surplus helped keep any baht depreciation under control. USD5.2 billion current account surplus in January THB41.4 billion net foreign selling of SET listed shares in February; biggest since August 2015 THB1.7 billion* net buying of Thai government bonds in February as substantial offshore selling at the beginning of the month reversed * Based on outright trading value. The accumulated net buying value may double count the trading value of rollovers. USD/THB Historical Performance THB vs USD THB vs JPY 1 month 0.2% 2.6% 3 months 3.9% 1.4% 12 months 10.0% 4.9% As of February 28, 2018, indicates THB depreciation Reuters Outlook: Near Term Baht Consolidation With the swing in risk sentiment and U.S. economic policy uncertainty still lingering, we expect capital flows to remain volatile and see scope for the baht to consolidate for the time being. We continue to foresee resumption of baht appreciation trend in light of expectations of monetary policy normalization at home. 3

4 Foreign Exchange Market Update Monthly Performance 0.0% 1.0% 2.0% 3.0% THB VND MYR TWD CNY SGD KRW PHP INR IDR vs USD 0.2% 0.2% 0.4% 0.6% 0.7% 1.0% 1.4% 1.4% 2.6% 2.6% Appreciation Depreciation 12.0% 6.0% 0.0% Yearly Performance 6.0% MYR THB CNY SGD KRW TWD INR VND IDR PHP vs USD 11.8% 10.0% 7.8% 5.6% 4.6% 4.3% 2.2% 0.0% 3.1% 3.6% Appreciation Depreciation Reuters, data as of February 28, 2018, indicates currency depreciation against USD 4

bn USD bn USD bn Jan 18 16.7 22.5 1.33 5.21 249.50 Dec 17 9.3 15.4 1.54 3.86 239.31 Nov 17 12.3 11.

5 Thailand: External Accounts Current Account & USD/THB Record high Structural surplus adds to THB appreciation pressure Exports Imports Trade Balance Current Account Reserves* % y o y % y o y USD bn USD bn USD bn Jan Dec Nov Bank of Thailand, * including net forward position, last data points: January

Thailand: Foreign Portfolio Flows Net Foreign Position & USD/THB THB mn 2015 2016 2017 2M2018 Stocks (154,350) 79,069

bonds 87% 53% 36% Thai Bond Market Association (based on outright trading value; the accumulated net buying value may

6 Thailand: Foreign Portfolio Flows Net Foreign Position & USD/THB THB mn M2018 Stocks (154,350) 79,069 (25,752) (47,081) Bonds (24,670) 331, ,633 79,101 Bonds (TTM>1) (33,858) 41, ,976 50,603 Share of shortterm bonds 87% 53% 36% Thai Bond Market Association (based on outright trading value; the accumulated net buying value may double count the trading value of rollovers), Stock Exchange of Thailand, Bank of Thailand, last data points: February

7 Thailand: Domestic Economy Manufacturing Production (% y o y) Consumer Confidence Floods 3.4% Coup d'état Private Investment (% y o y) Private Consumption (% y o y) % % Bank of Thailand, UTCC, last data points: January

CPI Excluding Raw Food & Energy Feb 18 0.42% 0.63% Jan 18 0.

8 Thailand: Inflation % headline inflation target year on year change Headline CPI CPI Excluding Raw Food & Energy Feb % 0.63% Jan % 0.58% Dec % 0.62% Ministry of Commerce, Bank of Thailand, last data points: February

Interest Rate Market Update Three Fed Hikes Roughly in the Price The FOMC did not meet in February but market movers came from the bigger than expected wage growth and Fed Chair Powell s testimony

9 Interest Rate Market Update Three Fed Hikes Roughly in the Price The FOMC did not meet in February but market movers came from the bigger than expected wage growth and Fed Chair Powell s testimony debut. While the U.S. labor market condition continued to tighten, other recent economic readings have been more mixed, leaving us skeptical over any inflation surge and hence the further move higher in long dated Treasury yields. The violent reaction to the January wage data and the yield spike, we believe, are more about an excuse for position adjustments in the equity markets. Back to Powell, the new Fed chief eventually managed a balanced communication that the Fed s gradual approach to rate hikes is on track. With the prospects of three rate increases this year, including one in March largely anticipated, the upside of long dated yields appear capped. US Federal Funds and Thai Policy Rates (%) U.S. Treasury curve steepened with the 10 year yield getting closer to 3%, the highest in over 11 years following concerns over deteriorating fiscal position and higher imported inflation. By early March, U.S. President Trump s plan to impose tariffs on imported steel and aluminum rattled financial markets and ignited fears that some major trading partners might retaliate by cutting their holdings of U.S. Treasuries. end of period Aug 17 Nov 17 Jan 18 Feb 18 USD6MLIBOR THBFIX6M Diff Reuters 9

Interest Rate Market Update MPC Staying Neutral The Monetary Policy Committee, as expected, unanimously voted (7 0) to keep the policy rate at 1.50% on Feb 14.

10 Interest Rate Market Update MPC Staying Neutral The Monetary Policy Committee, as expected, unanimously voted (7 0) to keep the policy rate at 1.50% on Feb 14. The Committee assessed the Thai economy has grown at a faster pace, thanks to recovery in external demand and tourism. While the rate setters saw local investment and consumption activities gain more traction, consumer inflation remained low and it would take some time to reach the target range of 1 4%. The policymakers also noted the baht experienced higher volatility and its fluctuation would persist. Overall, the cautiously optimistic tone by the MPC remains in place. Thai Govt Yield Curve Thai government yields at the short end inched lower amid strong demand for local bonds and subdued inflation, but those further out the curve rose following the spillover from global bond selloffs, mainly from the U.S. counterparts. In the meantime, government think tank NESDB reported Q4/17 GDP growth of 4.0% y o y and0.5%q o q on thebackofrobustexports,accelerationinprivateconsumptionand continued improvement in private investment whereas government spending slowed. GDP in 2017 expanded 3.9%, the best in five years. NESDB Secretary General Porametee, also a voting MPC member, said there is no urgency to raise rates with inflation still below target. While the February headline inflation eased, core inflation showed signs of gradual domestic demand pickup. We see scope for yields to rise following building core inflation, which would encourage the local authorities to consider a 25 bps rate hike in H2/18. Reuters 10

11 Forecast Factors in Focus Two way Volatility: Since concerns about rising U.S. inflation and higher yields have brought about the long awaited correction in risk assets, increased market volatility is here to stay with more factors at play. In addition, the Trump administration s protectionist policies, persistent political uncertainty in the Eurozone from recent Italian election outcome, as well as expectations of policy normalization path at major central banks will shape market directions. ECB Meeting: Mar 8. With growing expectations the ECB would end its QE program this September, players are awaiting how policymakers will tailor its policy guidance since economic performance in Eurozone improves notably yet inflationary pressure remains subdued. BoJ Meeting: Mar 8 9. Despite the recent remark by BoJ Governor Kuroda that acknowledged the possibility of a stimulus exit, the central bank is most likely to maintain policy stance in the foreseeable future. FOMC Meeting: Mar A 25 bps rate hike is well priced so the focus turns to the Fed s economic and rates projections. Fed chair Powell s comments about inflation and perhaps the Fed s balance sheet runoff could also deserve high attention. MPC Meeting: Mar 28:. We anticipate the policymakers to keep monetary policy unchanged and to reiterate cautiously optimistic economic assessment but neutral policy stance. FX USD/THB USD/JPY JPY/THB Feb 28, Q1/18F Q2/18F Q3/18F Q4/18F JPY/THB is per 100 yen, * USD/THB based on Bangkok closing rate, USD/JPY on New York close Policy Interest Rates Current end Q4/18F USD Fed Funds % 2.17% EUR Refinance 0.00% JPY O/N Call 0.10% THB 1 day R/P 1.50% 1.75% As of March 5,

12 Economic Projection 2016A 2017A 2018F Real GDP growth 3.3% 3.9% % Private Consumption growth 3.0% 3.2% 3.2% Private Investment growth 0.5% 1.7% 3.7% Public Consumption growth 2.2% 0.5% 3.2% Public Investment growth 9.9% 1.2% 10.0% Export Value growth 0.1% 9.7% 6.8% Import Value growth 5.1% 14.4% 9.5% Current Account (per GDP) 11.7% 10.8% 8.1% Headline CPI Inflation 0.2% 0.7% % National Economic and Social Development Board (NESDB), as of February 19,

Contact Persons Global Markets Research and Analysis Section Roong Sanguanruang Roong.Sanguanruang@krungsri.com Pote Siripoonsap Pote.Siripoonsap@krungsri.

13 Contact Persons Global Markets Research and Analysis Section Roong Sanguanruang Pote Siripoonsap Bank of Ayudhya Public Company Limited (A member of MUFG, a global financial group) <Head Office> 1222 Rama Ⅲ Road, Bang Phongphang Yan Nawa, Bangkok Thailand <Global Markets Group> 550 Ploenchit Road, Lumphini, Pathumwan, Bangkok Thailand This report has been prepared by The Bank of Ayudhya Public Company Limited, (A member of MUFG, a global financial group), (the Bank ), for general distribution. It is only available for distribution under such circumstances as may be permitted by applicable law and is not intended for use by any person in any jurisdiction which restricts the distribution of this report. The Bank and/or any person connected with it may make use of or may act upon the information contained in this report prior to the publication of this report to its customers. Neither the information nor the opinion expressed herein constitute or are to be construed as an offer or solicitation to buy or sell deposits, securities, futures, options or any other financial products. This report has been prepared solely for informational purpose and does not attempt to address the specific needs, financial situation or investment objectives of any specific recipient. This report is based on information from sources deemed to be reliable but is not guaranteed to be accurate and should not be regarded as a substitute for the exercise of the recipient s own judgment. This report is based upon the analysts own views, therefore does not reflect the Bank s official views. Historical performance does not guarantee future performance. The Bank and/or its directors, officers, and employees, from time to time, may have interest and/or underwriting commitment in the relevant securities mentioned herein or related instruments and/or may have a position or holding in such securities or related instruments as a result of engaging in such transactions. Furthermore, the Bank may have or have had a relationship with or may provide or have provided corporate finance or other services to any company mentioned herein. All views herein (including any statements and forecasts) are subject to change without notice and none of the Bank, its head office, branches, subsidiaries and affiliates is under any obligation to update this report. The information contained herein has been obtained from sources the Bank believed to be reliable but the Bank does not make any representation or warranty nor accept any responsibility or liability as to its accuracy, timeliness, suitability, completeness or correctness. The Bank, its head office, branches, subsidiaries and affiliates and the information providers accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. The Bank retains copyright to this report and no part of this report may be reproduced or re distributed without the written permission of the Bank. The Bank expressly prohibits the distribution or re distribution of this report to Private Customers, via the Internet or otherwise and the Bank, its head office, branches, subsidiaries or affiliates accepts no liability whatsoever to any third parties resulting from such distribution or re distribution. 13

THB Thermometer. February A member of MUFG, a global financial group

THB Thermometer. February A member of MUFG, a global financial group THB Thermometer February 2018 A member of MUFG, a global financial group Foreign Exchange Market Update Recap : January The dollar weakened broadly as growing expectations of monetary normalization outside