EIC expects MPC to gradually hike policy rate in the two remaining meetings of this year

MPC voted 6 to 1 to raise the policy rate 0.25% (from 0.5%) to 0.75%.

At the Monetary Policy Committee (MPC) meeting on August 10, 2022, the MPC voted 6 to 1 to raise the policy rate 0.25%, effective immediately. The economic recovery has continued to strengthen. The Thai economy is expected to return to the pre-COVID level by the end of this year. Headline inflation will remain at a high level for some time. The Committee assesses that the extraordinarily accommodative monetary policy undertaken in response to the COVID-19 pandemic has become less needed. One member voted to raise the policy rate 0.50% to reduce the risk of having to increase the policy rate aggressively later and views that such a rate increase will not significantly affect the economic recovery.

The MPC projects the Thai economy to continue recovering with strong momentum.

This is attributable to a larger-than-expected number of foreign tourist arrivals following the relaxation of international travel restrictions and improved travel sentiments. In addition, private consumption would continue to recover in line with improvements in labor market conditions and household incomes. Although the risk of global slowdown has heightened, the impact on the Thai economy would be limited. Nonetheless, there remains a need to monitor risks to the growth outlook in the period ahead, especially the impact of rising living costs on private consumption.

The MPC expects headline inflation will remain at a high level, largely unchanged from the previous forecast of 6.2%.

Headline inflation will remain at a high level for some time, before gradually falling into the target range in 2023 as the supply-side inflationary pressures subside. Meanwhile, medium-term inflation expectations have not increased significantly. Going forward, the inflation outlook is still subject to upside risks, including potentially higher and faster cost pass-through to core inflation.

The MPC assesses that liquidity in the financial system remains ample, while overall financial conditions remain accommodative but with high volatility.

Debt serviceability of households and businesses has improved in line with the economic recovery. However, there are certain vulnerable groups, particularly some SMEs that have yet to fully recover as well as low-income households that are sensitive to the rising living costs. Meanwhile, the baht has depreciated against the US dollar mainly due to the strengthening of the US dollar following concerns about the global economic slowdown and the Fed tightening.