The BOT’s MPC signaled a slower and uneven economic recovery due to the third-wave outbreak. EIC expects inflation to stay within target and the BOT’s MPC to keep policy rate steady at 0.5% through this year and next year.

MPC voted unanimously to maintain the policy rate at 0.5%, while cutting the Thai economic growth forecast to 1.8% this year, close to EIC forecast since early June at 1.9%. MPC also signaled a slower and uneven economic recovery due to the impact of the third-wave outbreak, with procurement and distribution of vaccines in an adequate and timely manner being the most important issue for the Thai economy at the present. 

MPC assessed that overall liquidity remained ample but its distribution was uneven due to increased credit risks, particularly among SMEs and households that were additionally affected by the third-wave outbreak. The continuity of government measures and policy coordination among government agencies would be critical to support the economic recovery impacted by the new outbreak.

EIC expects the BOT to keep policy rate steady at 0.5% through 2021 and 2022, despite sign of reflation. However, EIC assesses that headline inflation in 2021 will average at 1.3% which will still be below the midpoint of the inflation target range of 1-3%. Nevertheless, financial system liquidity that is still unevenly distributed will remain a key challenge for the BOT to address urgently, while EIC believes that the success of the new financial rehabilitation measures going forward will depend on the monitoring of problems and constraints in order to adjust conditions for the measures to be more effective.

Thai government bond yields dropped slightly in line with the US treasuries, while the baht faced weakening pressure from stronger US dollar. EIC assesses that Thai government bond yields may rise at the end of this year in line with US treasuries and expected increase in supply of government bonds. The baht will still face weakening pressure in the third quarter. However, appreciation pressure for US dollar may slow down toward the end of the year. EIC thus maintains its forecast of the baht at the end of the year to stay within range of 31-32 baht per USD.