Abstract
The Monetary Policy Committee (MPC) in Thailand has voted unanimously to raise the policy rate by 25 basis points from 2% to 2.25% per annum. The country’s economic recovery remains intact, although external demand has slowed down. However, it is expected to regain footing. Inflation has subsided and is expected to stay within the target range, with upside risks. The MPC believes that raising the policy rate will stabilize inflation and promote long-term economic and financial stability. They will consider the pace of further rate hikes based on the economic outlook and risks. The MPC forecasts continued economic growth supported by the tourism sector and private consumption, although uncertainties remain with the export rebound and domestic politics. Inflation is expected to accelerate in the second half of 2023. The financial system remains resilient with easing financial conditions. However, there are concerns about high debt burden and fragile households’ debt service ability. The MPC supports debt restructuring and targeted policy measures to assist vulnerable groups. The private sector borrowing costs are likely to increase alongside the policy rate. Key factors that affect the Thai baht movement include the US monetary policy direction, China’s economic outlook, and Thailand’s political uncertainties.
The MPC voted unanimously to raise the policy rate by 25 basis points from 2% to 2.25% per annum.
Thailand’s economic recovery stayed intact, whereas external demand saw a slowdown but will likely regain footing. Inflation has subsided and is expected to hover within the target range amid upside risks. Based on the MPC assessment, as Thailand’s economy bounced back to its potential, the monetary policy should stabilize inflation within the target range and propel long-term economic and financial stability by preventing the buildup of financial imbalances—brought by a prolonged period of low interest rates. The Committee also strives to secure monetary policy spaces to address higher uncertainties ahead. For further rate hikes, MPC will consider the pace that fits well with the economic and inflation outlook as well as risks.
MPC forecasts continued economic growth backed by the tourism sector and private consumption.
In contrast, Thai merchandise exports will witness a short-term contraction, owing to China’s economic slowdown and subdued global electronics cycle—which should regain traction in line with an upbeat global economic outlook. Yet, Thailand still faces rising uncertainties as an export rebound could fall behind the forecast while the domestic political situation remains highly unstable.
MPC expects the headline inflation to accelerate in 2H/2023.
Headline inflation has cooled down thanks to falling energy prices, cost-of-living subsidies, and high-base effects from the previous year. Still, the headline inflation will likely escalate in 2H/2023 after those temporary effects peter out. Core inflation has subsided but will stay above the past readings, given upside inflationary pressures from food costs—especially in case El Nino’s damages on agriculture are larger than anticipated. Such circumstances would accelerate cost pass-through from producers to consumers as the economy continues to rebound.
Based on MPC’s press release, the financial system remained resilient with easing financial conditions.
Thailand’s overall financial system was in good shape, as evident in robust funds and capital buffers among commercial banks. Yet, high debt burden and somber income outlook continued to impair SMEs and fragile households’ debt service ability—thus worsening overall credit quality. Therefore, MPC has consistently supported debt restructuring and targeted policy measures to assist the vulnerable group in sustainable debt resolution—including responsible lending. The financial condition has been decreasingly accommodative yet remained favorable for economic rebound and fund mobilization by the private sector. Borrowing costs for the private sector will likely increase alongside the policy rate. The recent slowdown in private credit growth was partly attributed to normalization after rapid growth during the COVID-19 crisis. Meanwhile, key factors affecting the Thai baht movement include the US monetary policy direction, China’s economic outlook, and Thailand’s political uncertainties.
