Citi expects policy rate to rise to 2.25% by 3Q2023 despite BOT debt concerns

Citibank Thailand still expects the policy rate to be gradually adjusted to 2.25% by the third quarter of 2023 after the Bank of Thailand (BOT) announced an increase in the policy rate to 1.50%.

Citi eyes policy rate at 2.25% in Q3

Nalin Chatchotham, economist at Citibank Thailand, said the BOT is expected to raise the policy interest rate to 2.25% in the third quarter of 2023, as Thailand’s economic growth momentum continues between 2023 and 2024. On the positive side, although the BOT still has concerns about household and SME debt, the BOT still believes that private credit can continue to grow. despite rising interest rates and financial costs

Citibank expects headline inflation to average 2.2% next year, so the real policy rate will slide from negative to 0%, similar to the historical average. But the risk factor that could cause the Bank of Thailand to raise the policy rate less than expected is

  • The global economy may slow down more than expected. and may affect Thailand’s export sector
  • If the baht appreciates too quickly, some members of the MPC may consider delaying the rate hike.

The recent appreciation of the baht is not likely to be a major concern for the MPC at present, although the recent appreciation of the baht has raised concerns about potential effects in some sectors, such as those exports. exchange rate is one of the main goals of monetary policy. which includes sustainable growth in the economy price stability and stability of the financial system

On 25 January 2023, the Monetary Policy Committee (MPC) voted unanimously to raise the policy rate by 0.25% per annum from 1.25% to 1.50% after assessing that the downside risks to global economic growth have decreased. The latest economic data from developed countries came out better than expected. and opening up China faster than expected

In addition, the Bank of Thailand (BOT) has predicted that the global economy will pass the lowest point this year. The content of the export sector will begin to recover in 2024, although Thai exports at the end of the year will grow lower than expected. 2023 increased to 34 million people from 31.5 million people originally expected, which is r BOT is of the opinion that the recovery of the tourism sector leads to employment. as well as an increase in the incomes of the services sector and the wider self-employed

At the same time, the Bank of Thailand’s domestic inflation outlook has not changed much since the November 2022 meeting, indicating that the drop in global commodity prices has eased the pressure of supply-side inflation in Thailand. The private sector’s medium-term inflation expectations remain anchored at 1-3% of the monetary policy target.

However, the BOT still sees a need to keep an eye on core inflation, which is still at a much higher level than in the past, which the BOT believes the latest inflation indicators shows that inflationary pressures are still high. And care still needs to be taken to pass on the unfinished production costs to the prices of consumer goods in the future. Especially from electricity prices adjusted earlier in 2023, as well as the recovery of the tourism sector can be another factor that causes higher inflationary pressure due to demand factors.

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