• Krungthai COMPASS reveals that the MPC has decided unanimously to raise the policy rate by 0.25 percent to 2.00 percent per annum, considering that the economy is likely to continue to expand from tourism and private consumption. while exports are expected to recover gradually In terms of headline inflation, it may fall. but it has been assessed that core inflation remains high And there is a high risk of pressure on demand and the transfer of costs from operators which could increase.
• Krungthai COMPASS assesses that the MPC has an opportunity to maintain interest rates at the next meeting. waiting to see the clarity of the government institution and public sector economic policies and there may be another rate increase to 2.25% at the end of the year due to concerns about core inflation which remains at a high level and high risks, and perhaps the the recovery of the Thai economy will be a supporting factor on the interest rate increase by the MPC
The MPC decided unanimously to raise the policy rate for the sixth consecutive time to 2.0 per cent per annum.
The MPC unanimously decided to raise the policy rate by 0.25 per cent per annum from 1.75 per cent to 2.00 per cent per annum at the 3/2023 meeting with the following key points:
• Thailand’s economy tends to continue to grow mainly from tourism and private consumption. Estimates that the economy in 2023 and 2024 is likely to expand at 3.6 and 3.8 percent, respectively, from the number of foreign tourists likely to reach 29 million and 35.5 million respectively, which will support employment and labor income and will be a driver for private consumption Meanwhile, exports were gradually improving in line with the assessment and tending to grow better in the period to come, but economic forecasts had to be monitored and monetary policy of major economies cautiously.
• Headline inflation tends to fall gradually. Headline inflation in 2023 and 2024 is expected to be at 2.5 per cent and 2.4 per cent, respectively, due to the gradual easing of electricity and oil prices. As a result, headline inflation was reduced towards the target range. Meanwhile, core inflation is expected to remain stable at 2.0 per cent in 2023 and 2024, which is high compared to the past. And the pass-through of costs to operators may increase due to supply pressures.
• Debt restructuring measures should be implemented continuously. including the importance of having specific measures and sustainable solutions to debt problems for vulnerable groups Although the utility of business and household debt has improved in line with the economic recovery. However, the financial situations of some SMEs, entrepreneurs and households are still fragile and sensitive to rising living costs and debt burden. Commercial banks have strong capital and reserve levels.
• Financial conditions tightened in line with the increase in the policy rate. Private borrowing costs rose But it is not an obstacle to private finance and economic recovery. While the exchange rate of the baht against the US dollar has depreciated due to the monetary policy direction of the US Federal Reserve. the depreciation of the yuan and political instability in Thailand
• Krungthai COMPASS expects that the MPC will likely keep interest rates at the next meeting. The MPC has raised the policy rate six times in a row from 0.50% to 2.0% per annum to curb high inflation above the target and the highest in 14 years, however, headline inflation has continued to slow. Most recently, it was at 2.67% in April 2023 and is expected to be below the upper limit of the inflation target of 3% in the future. Headline inflation this year will be at 2.5%, reflecting a gradual easing of inflationary pressures and may be a factor in pushing the MPC to maintain interest rates at the next meeting in August to wait for clarity and the government’s economic policies This will be a factor affecting the economic recovery in the period to come.
• Krungthai COMPASS assesses that the increase in the interest rate is not over yet. Although headline inflation is likely to fall, the MPC expects core inflation to remain high at 2.0% in 2023 and 2024, and we believe the MPC will place a high emphasis on core inflation increasing as it reflects a share the prices that consumers spend at 67.1% of the inflation basket In addition, the MPC said that inflation poses a high risk of support on the demand side following healthy economic growth. and pass-through costs for operators which may increase due to supply pressures. which depends on the government’s future economic policy In addition, the Thai economy also has high risks. Therefore, if the government is successfully formed, the MPC may have the opportunity to raise the policy rate once again to 2.25% per annum by the end of 2023.
analyst
Maknual Chamanai
Chonnithis Chaisingthong
Krungthai COMPASS
