Kasikorn Research Center expects the MPC to maintain interest rates at 0.5%
Date 29 Mar 2022 time 21:41
The MPC is expected to keep the interest rate unchanged at 0.5%, with the MPC likely to continue to focus primarily on economic recovery. despite rising inflation risks
Kasikorn Research Center expects that at the Monetary Policy Committee (MPC) meeting on March 30, the MPC is expected to maintain the policy rate at 0.5% to support a risky economic recovery. However, the MPC will face greater challenges in maintaining price stability amid rising inflationary pressures.
The path of economic recovery in Thailand faces more risks due to the impact of the Russia-Ukraine crisis. The Russia-Ukraine crisis has affected energy prices. including the prices of various commodities both industrial metals and agricultural products used as raw materials for production continued to accelerate. This will further increase the inflation pressures of Thailand. and to undermine the purchasing power of consumers who were originally vulnerable due to the impact of COVID-19.
In addition, the Russia-Ukraine crisis has also contributed to the recovery of Thai tourism, which currently relies heavily on European tourists during the lockdown period in China. It will also affect Thai exports, which will be affected mainly by the slowdown in trading partners’ economies. Therefore, amid increasing economic risks, the MPC is expected to maintain the policy interest rate at 0.5. % in the upcoming meeting In order to support the recovery of the Thai economy, the MPC will likely focus primarily on economic recovery despite the risk of rising inflation as well.
However, the MPC will face more challenges in maintaining price stability. amid the trend of energy prices that will remain at a high level going forward The Kasikorn Research Center forecasts Thailand’s headline inflation rate in 2022 at 4.5%. Accelerating energy prices in the world market have also increased the burden of fuel and transportation costs in the country. while the government measures that help freeze the price of diesel to help mitigate the impact on the household and transportation sectors may be done in the short term Because the government has to bear the burden of increasing fiscal costs.
In addition, rising energy and commodity prices have caused producers to face higher costs. This was reflected by the Producer Price Index (PPI) which stood as high as 9.4% in February, where some producers may gradually pass on these rising costs to consumer prices. and ultimately resulting in higher inflation.
However, the spike in inflation was mainly driven by supply-side factors. The policy interest rate hike may not solve the inflation problem exactly how much. It will also undermine consumption and investment even more.
Therefore, it is expected that the MPC will not consider using the policy rate hike policy to curb inflation in the direction of central banks around the world as the Thai economy is still not strong enough. Fiscal policy continues to play an important role in helping to mitigate the impact of households from rising cost of living.
Meanwhile, the tight monetary policy direction of central banks around the world, especially the Federal Reserve (Fed), will likely put pressure on accommodative monetary policy going forward. especially in the second half of the year From the meeting of the Federal Open Market Committee (FOMC) last time. The Fed has begun its interest rate cycle with a resolution to raise the policy rate by 0.25% to 0.25-0.50%. It may raise interest rates by more than 0.25% in one or more meetings in the future. The wider gap between the Thai and US policy interest rates, as well as if Thailand’s inflation continues to remain high, will result in more negative Thai real interest rates. This opens up risks to financial stability. Therefore, the MPC will continue to consider the overall situation of the Thai economy around, weighing the risks arising from pressure on capital outflows. including the situation of the baht The pressure is likely to be in the second half of 2022 onwards. However, if the Thai tourism sector does not recover as expected due to the impact from the Russia-Ukraine crisis that affects more than expected. The Thai economy is at risk of facing another negative current account deficit this year. It will further increase the pressure on the baht to stay in the depreciation direction.
In this regard, the MPC meeting This time, economic and inflation projections will be published. The market will have to monitor the MPC’s revision of economic and inflation projections. Because it will reflect the view of the MPC. In considering monetary policy going forward, Kasikorn Research Center expects the MPC to There will likely be a slight revision of the economic forecast for this year from the previous forecast of 3.4% in December 2021, but if the MPC has significantly lowered its economic projection May increase pressure on the money market and capital markets in the short term.
