EIC expects MPC to hold policy rate at 0.5% throughout 2021 and 2022 given better economic recovery outlook, while there is no pressure for rate hike to ensure price stability like other central banks.
The MPC voted unanimously to maintain the policy rate at 0.5% assessing that the Thai economy had bottomed out in the third quarter ...
Wachirawat Banchuen,Nichanan Logewitool
The MPC voted unanimously to maintain the policy rate at 0.5% assessing that the Thai economy had bottomed out in the third quarter of 2021 and entered the recovery phase following the easing of the lockdown measures and the country re-opening. Meanwhile, downside risks to the economic projection decreased on account of the accelerated vaccination progress. Domestic spending gradually recovered following the easing of the lockdown measures partially offsetted the adverse impact of higher global energy prices. However, the fragile recovery would remain subject to uncertainties. Looking ahead, the recovery of economic activities and employment would remain uneven across economic sectors. Headline inflation would increase temporarily owing to supply-side factors, particularly the energy prices which would likely decline by early next year. Nevertheless, headline inflation would remain within the target, with upside risks including the elevated global energy prices persisting longer than expected and global supply constraints becoming more prolonged.
Although demand-supply mismatch has caused inflation to continue accelerating in many countries, putting pressures on monetary policy conduct of many central banks around the world, EIC views that such pressures to hike policy rate of other central banks would not influence the MPC to accelerate the policy rate hike. This is as Thailand’s inflation remains low at present. Consequently, the MPC does not need to accelerate the hike to ensure price stability like other countries. In addition, Thailand’s external stability remains sound. There is thus no need to raise policy rate to reduce risk of capital outflows or large currency depreciation.
Therefore, EIC expects the MPC to hold the policy rate at 0.5% through 2021 and 2022 on the back of better economic recovery outlook following the easing of the lockdown measures. EIC assesses that the Thai economy in 2022 will recover more strongly on account of growing exports, domestic demand recovery following the easing of the city lockdown, widespread vaccination, and government liquidity support (the rest of the 500-billion baht Royal Decree)
