SCB EIC expects the MPC to continue hiking policy rate 2 more times and keep it steady at 2% throughout 2023

The MPC votes unanimously to raise the policy rate 0.25% from 1.25% to 1.5%. 

The Thai economy will continue to gain traction with continued recovery in tourism and private consumption thanks to the return of Chinese tourists. Meanwhile, merchandise exports will slow down this year but are expected to improve in 2024 in line with the global economic recovery. Headline inflation is expected to decline, whereas core inflation remains at a high level with increased risks from demand-side inflationary pressures due to the economic recovery. The Committee deems that a continuing gradual policy normalization is an appropriate course for monetary policy consistent with the growth and inflation outlook.

The MPC assesses that the Thai ecoomy will continue expanding. 

The tourism sector will exhibit a faster recovery following the return of Chinese tourists. This will contribute to a more broad-based improvement in employment and income of services sector and self-employed workers, which account a significant share of total employment. Such improvements will support the continued expansion of private consumption. Meanwhile, growth of merchandise exports will moderate this year, but is expected to resume in 2024 in tandem with global growth. The Committee assesses that downside risks to the global economy have decreased given the improving outlook in both advanced economies and China. 

The MPC expects healind inflation to decline but risks of rising demand-side inflationary pressures must be monitored. 

Supply-side inflationary pressures continue to dissipate along with a decline in global energy and commodity prices. Core inflation is expected to remain at a high level for some time before gradually decreasing. Meanwhile, medium-term inflation expectations remain anchored within the target range. However, there is a risk that core inflation would remain high for longer than expected owing to a potential increase in pass-through given elevated costs. Moreover, the tourism recovery could increase demand-side inflationary pressures. 

The MPC assesses that financial system remains resilient but overall financial conditions are less accommodative.  

Debt serviceability of households and businesses has improved in line with the economic recovery. However, the financial positions of some SMEs and households remain fragile and sensitive to the rising living costs and debt burden. Funding costs have risen in tandem with the policy rate increases as well as the expiration of reduction in the Financial Institutions Development Fund (FIDF) contribution. However, bank lending and bond issuances continue to increase. The baht against the US dollar has appreciated owing to expectations of a less aggressive tightening of the Fed as well as China’s relaxation of international travel restrictions which would benefit the Thai tourism sector.