1. KBank Capital Markets Perspectives 26 April 2012
Just the Federal Reserves…not Fed Ex, so QE delivery is late
%
The Fed decided to keep the Fed Funds rate in the target 8
range of 0.00%-0.25% after the meeting on 24-25 April 2012. 7
This target range has been kept since December 2008 and 6
will be maintained at least through late-2014 5
There was no strong signal from the Fed about the third 4
round of Quantitative Easing or QE3 in the meeting at this 3
time. However, the Fed Chairman Ben Bernanke said that 2
the Fed stands ready to add its stimulus if necessary. 1
0
The Fed also upgraded its economic forecast for 2012 in this
00 01 02 03 04 05 06 07 08 09 10 11 12
month meeting. GDP forecast was raised to 2.4%-2.9%
while unemployment rate was lower to 7.8%-8.0% in 2012. Fed Funds UK ECB RBA Japan
The raise in the Fed’s economic projection may reduce the
chance that the Fed will introduce another quantitative easing Source: Bloomberg
as the U.S. economy is believed to grow well this year
but…when look at the housing and labor markets in the U.S.,
it signals that the easing may be necessary. Puttikul Ackarachalanonth
We believe the Fed will probably introduce another round of puttikul.a@kasikornbank.com
QE this year and based on this assumption, we foresee
USD/THB to move lower to 29.50 at the end of this year.
Disclaimer: For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from
sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request.
1

2. Monetary policy remains unchanged
Federal funds rate
The Fed decided to keep Fed Funds rate in the target range of %
0.00%-0.25% after the meeting on 24-25 April 2012. This target 8
range has been kept since December 2008 and will be 7
maintained at least through late-2014. 6
5
This time, 7 out of 17 Fed officials expected the Fed Funds rate
4
to remain below 1% at the end of 2014, compared to 9 out of 17 3
Fed officials in January meeting, according to figure 2 in the
2
Fed’s projection material. This information showed the Fed 1
officials were more hawkish than their meeting in January.
0
There was no strong signal from the Fed about the third round 00 01 02 03 04 05 06 07 08 09 10 11 12
of Quantitative Easing or QE3 in the meeting at this time.
However, the Fed Chairman Ben Bernanke said that the Fed Fed Funds UK ECB RBA Japan
stands ready to add its stimulus if necessary. Fed’s balance sheet
3,000
The Fed also upgraded its economic forecast for 2012 in this
month meeting. (Please see next page for detail of the Fed’s 2,500
forecast.) 2,000
The Committee will continue its Operation Twist program that
1,500
started in September last year to extend the average maturity of
its holdings of securities. The Operational Twist will end in June 1,000
2012. The market are either the Fed to continue its operational 500
twist program after the expiration or announce another QE.
-
02 03 04 05 06 07 08 09 10 11
Fed's balance sheet, USD bn
2

3. Fed raised economic projection in the meeting
The forecast for real GDP in 2012 had been raised from the forecast in January of 2.2%-2.7% to 2.4%-2.9% in yesterday meeting as
FOMC committee believed the U.S. economy has been expanding moderately.
The forecast for the unemployment rate in 2012 was reduced from 8.2%-8.5% to 7.8%-8.0% after the U.S. labor market has been
improved in recent months.
Since the inflationary pressure has been raising recently due to the higher oil price, the Fed increased its projection of PCE inflation as
well as Core PCE in 2012. However, the Fed said the increase in oil price is expected to affect inflation temporarily. Noted that the
new inflation forecast is still in below 2% inflation target.
Please see detail of economic projections of the Federal Reserve Board Members and Federal Reserve Bank Presidents for April 2012
in below table.
Variable Central tendency Range
Unit: % 2012 2013 2014 Longer run 2012 2013 2014 Longer run
Change in real GDP 2.4 to 2.9 2.7 to 3.1 3.1 to 3.6 2.3 to 2.6 2.1 to 3.0 2.4 to 3.8 2.9 to 4.3 2.2 to 3.0
January projection 2.2 to 2.7 2.8 to 3.2 3.3 to 4.0 2.3 to 2.6 2.1 to 3.0 2.4 to 3.8 2.8 to 4.3 2.2 to 3.0
Unemployment rate 7.8 to 8.0 7.3 to 7.7 6.7 to 7.4 5.2 to 6.0 7.8 to 8.2 7.0 to 8.1 6.3 to 7.7 4.9 to 6.0
January projection 8.2 to 8.5 7.4 to 8.1 6.7 to 7.6 5.2 to 6.0 7.8 to 8.6 7.0 to 8.2 6.3 to 7.7 5.0 to 6.0
PCE inflation 1.9 to 2.0 1.6 to 2.0 1.7 to 2.0 2.0 1.8 to 2.3 1.5 to 2.1 1.5 to 2.2 2.0
January projection 1.4 to 1.8 1.4 to 2.0 1.6 to 2.0 2.0 1.3 to 2.5 1.4 to 2.3 1.5 to 2.1 2.0
Core PCE inflation 1.8 to 2.0 1.7 to 2.0 1.8 to 2.0 1.7 to 2.0 1.6 to 2.1 1.7 to 2.2
January projection 1.5 to 1.8 1.5 to 2.0 1.6 to 2.0 1.3 to 2.0 1.4 to 2.0 1.4 to 2.0
Source: Federal Reserve Government website, Release at 2.00AM on April 26, 2012 (Bangkok time)
3

4. QE3 may be necessary due to situation in housing and labor markets
The raise in the Fed’s economic projection may reduce the chance that the Fed US Home Buyer Affordability Index and 10-year U.S. Treasury Yield
will introduce another quantitative easing as the US economy is believed to grow 220 1.50
210
well this year but…when look at the housing and labor markets in the US, it 2.00
200
signals that the easing may be necessary. 190 2.50
Recent data showed that the housing market is still a concern for the Fed. New 180
170 3.00
home sales in the US declined 7.1% mom in March; although the home price in 160
20 cities increased slightly by 0.15%. The market seemed to ignore the data of 150 3.50
the new home sales that day and focus on the pricing data instead. But this is 140 4.00
the fact that we cannot reject that the housing market in the U.S. is not yet 130
recovered to its normal level before the crisis. 120 4.50
08 09 10 11 12
Although the U.S. non-farm payroll in March increased by 120,000, market did
not welcome this information as it was much lower than the survey of an increase Homebuyer affordability index, left 10yr UST, right, inverted, %
of 205,000. The survey numbers were more than reported amount for eight Number of weeks unemployed in the market
consecutive months (August 2011 – February 2012). This posted some sign to 45
the U.S. job market as the increase in the hiring may not continue its strength. 40
35
These are the two main reasons why the Fed should continue its easing
30
program. The Fed is trying to fix the housing market by keeping the interest rate
25
low in order to make the house affordable. Please noted that there is an inverse 20
relationship between home buyer affordability index and 10-year Treasury yield 15
i.e. as the yield is lower (and thus the interest rate), people can afford to buy 10
home more. For the labor market, the data shows that people stay unemployed 5
longer (around 40 weeks). The longer one is unemployed, the job skill 0
deteriorate and it become even harder to find a job. Thus, the Fed is under time 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
pressure for the easing and therefore, either more measures like Operation Twist
number of weeks unemployed
and or QE is need to keep US long rates low and boost job market.
4

5. If there is QE3, what will happen to USD/THB ?
USD/THB Mapping Fed balance sheet, USD/THB
If there is another round of the quantitative easing, the U.S. 110
dollar will be weakening and USD/THB will be lower (i.e. baht is 105
strengthening) automatically despite the fact of the fundamental y = -0.1198x + 126.77
2
of Thai economy which is not yet fully recovered from the 100 R = 0.6055
flooding.
95
The above graph is the mapping between Fed balance sheet 309.98
90
and USD/THB. The graph pictures an inverse relationship
between the two variables. If there is QE3, Fed balance sheet 85
will become larger and USD/THB will become lower.
80
When Fed prints money, some money will flow out from the U.S. 150 170 190 210 230 250 270 290 310 330
to the emerging market like Asia (including Thailand) where Fed balance sheet, indexed, Jan 2008 = 100
there is more opportunity for higher return. Based on the data ICI Emerging Market Equity and SET Index
from Investment Company Institute (ICI), it shows that when 300 1200
money in ICI Emerging Market Equity Fund increases, SET
250 1000
Index will also increase. This is a factor that move USD/THB
lower as well because ICI fund in the U.S. needs to buy baht for 200 800
investing in Thailand. 150 600
In conclusion, we believe the Fed will probably introduce another 100 400
round of QE this year and based on this assumption, we foresee
USD/THB to move lower to 29.50 at the end of this year. 50 200
- 0
00 01 02 03 04 05 06 07 08 09 10 11 12
ICI EM Equity net assets, USD bn, left SET index, right
5

6. FOMC Statement: release date – April 25, 2012
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately.
Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending
and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed.
Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have
remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects
economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the
unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial
markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is
expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it
judges most consistent with its dual mandate.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the
Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the
target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource
utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at
least through late 2014.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September.
The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-
backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will
regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a
stronger economic recovery in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke;
Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the
action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal
funds rate through late 2014.
6

7. FOMC Statement: release date – March 13, 2012
Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately.
Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated.
Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been
subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained
stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects
moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward
levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they
continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation
temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual
mandate.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the
Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the
target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource
utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at
least through late 2014.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September.
The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-
backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will
regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a
stronger economic recovery in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke;
Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the
action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal
funds rate through late 2014.
7