Abstract
The Monetary Policy Committee (MPC) in Thailand has unanimously voted to raise the policy rate from 2.25% to 2.50%. The country’s economy is continuing to recover, although at a slower rate due to weak external demand. However, growth is expected to pick up in 2024 with support from both domestic and global demand. Inflation is projected to increase next year in line with the economic recovery and El Niño-related supply pressure. The MPC will monitor the impact of government economic policies on growth and inflation. The committee believes that the current policy rate is appropriate for supporting sustainable long-term growth. The MPC projects GDP growth of 2.8% in 2023 and 4.4% in 2024, driven by private consumption. Headline inflation is expected to be 1.6% in 2023 and 2.6% in 2024. The overall financial system remains resilient, although financial conditions have tightened somewhat. There is a need to monitor credit quality for certain SMEs and households with debt issues. Financial markets have experienced volatility, influenced by US monetary policy and anticipation of government policies.
The MPC voted unanimously to raise the policy rate by 0.25% from 2.25% to 2.50%.
The Thai economy overall continued to recover in 2023, albeit at a slower pace due to soft external demand. Growth should pick up in 2024, supported by both domestic and global demand. Inflation is projected to increase next year in line with the economic recovery and El Niño-related supply pressure. The MPC is monitoring additional impetus to growth and inflation from government economic policies. In the context of continuing economic expansion to its potential level, monetary policy should aim to keep inflation sustainably within the target range, foster long-term macro-financial stability, and ensure sufficient policy space given uncertain outlook. Having normalized policy gradually up to the current meeting, the MPC deems the current policy rate to be appropriate for supporting long-term sustainable growth. In deliberating monetary policy going forward, the Committee will take into account growth and inflation outlook, including upside risks from government economic policies.
The MPC projects growth to be 2.8% in 2023 and 4.4% in 2024,
driven by private consumption. Growth this year softened somewhat from a delayed recovery in merchandise exports and tourism, weighed by subdued growth in China and the global electronic cycle. Growth should however pick up in 2024 from domestic demand, underpinned by a steady tourism recovery and a turnaround in merchandise exports, with additional support from government policies.
The MPC projects headline inflation to be 1.6% and 2.6% in 2023 and 2024, respectively.
Government living-cost subsidies and a high base last year would keep inflation low for the rest of 2023. Meanwhile, core inflation should pick up from 1.4 in 2023 to 2.0 percent in 2024. The MPC is attentive to the upside risks to inflation, stemming from possible demand-side pressures related to government economic policies and higher food prices should the El Niño phenomenon intensify.
The MPC assesses overall financial system to remain resilient while financial conditions tightened somewhat.
Financial institutions maintain high levels of capital and loan loss provision. There is a need to continue monitoring credit quality for some SMEs and households with impaired debt serviceability, higher debt burden, and slower income recovery. Overall financial conditions tightened somewhat but remain supportive for fund rasing by the private sector and the ongoing economic recovery. Private sector funding costs increased consistent with the policy rate. The slowing private credit growth partly reflected a normalization of lending activity after the crisis-era expansion, and should improve as the recovery gathers momentum. Financial markets volatility picked up, with rising bond yields and baht depreciation against the US dollar, influenced by US monetary policy and as market participants awaited details on government policies which may have macroeconomic and fiscal sustainability implications.
