EIC expects the MPC to keep rate on hold at 0.5% through 2022 given that inflation risk and monetary policy of major economies will not put pressure for the MPC to quickly raise the policy rate

The MPC voted unanimously to maintain the policy rate at 0.50% assessing that the Thai economy would grow 0.9% in 2021 and would continue to expand 3.4% and 4.7% in 2022 and 2023, respectively. The Thai economy was expected to continue recovering and return to the pre-COVID level in the beginning of 2023. Meanwhile, headline inflation would increase temporarily in the first half of 2022 mainly in line with energy prices, but was expected to subside in the second half of 2022. Nevertheless, the spread of the Omicron variant would be a key risk to the economic outlook in the period ahead.

The Committee indicated that monetary policy should contribute to continued accommodative financial conditions overall. Financial and credit measures should be expedited to distribute liquidity to the affected groups in a targeted manner and help reduce debt burden. In addition, financial institutions should accelerate debt consolidation and debt restructuring in a sustainable manner through the scheme launched on September 3, 2021 to have broader impacts and be consistent with borrowers’ long-term debt serviceability.

EIC expects the MPC to keep rate on hold at 0.5% throughout 2022 as the impact of the Omicron outbreak will mostly be limited to the first half of next year and the economy will gradually recovery in the latter half of the year. The first policy rate hike can possibly occur in 2023 and the hike would be gradual and in line with the slowly recovering Thai economy. EIC assesses that the Thai economy will likely return to the pre-COVID level in 2023.

EIC expects the monetary policy of major economies that will likely tighten in 2022 to have a limited impact on the Thai economy and not to pressure the MPC to quickly raise the policy rate like other emerging markets (EMs). This was because 1) Thailand’s inflation will likely remain low due to limited demand pressures given the gradual economic recovery, 2) the baht may weaken somewhat in the short run, but not to a large degree, and will likely strengthen in the latter half of 2022, and 3) Thailand’s external stability remains strong. However, although Thailand is less susceptible to the tightened monetary policy in the US, China’s economic slowdown may significantly affect the Thai economy.