SCB EIC expects the MPC to continue with 3 more policy rate hikes to stand at 2% in 2023

MPC voted unanimously to raise policy rate by 0.25% from 1% to 1.25% as expected. 

The Thai economic recovery has continued to gain traction. Tourism and private consumption will continue to be key economic drivers going forward and help alleviate the impact of global slowdown on the Thai economy. Headline inflation is expected to be higher than the previous projection for 2023 due to domestic energy prices. However, it is still expected to decline and return to the target range within 2023. The Committee deems that a gradual policy normalization remains an appropriate course for monetary policy given the growth and inflation outlook.

The MPC assesses that the Thai economy will likely continue growing at 3.2%, 3.7%, and 3.9% in 2022, 2023, and 2024, respectively. 

The tourism sector continues to strengthen as the number of foreign tourists continues to rise. Additionally, private consumption is supported by improving economic activities, as well as a more broad-based recovery in employment and labor income. Tourism sector and private consumption will continue to be key economic drivers in 2023 and 2024, although the global slowdown would cause Thai export growth to decelerate. Nonetheless, the Committee will monitor the highly uncertain global economic outlook which could slow down more than expected, as well as the momentum of the tourism sector.

The MPC expects headline inflation to be at 6.3%, 3.0%, and 2.1% in 2022, 2023, and 2024, respectively.

Headline inflation has peaked in the third quarter. For 2023, it is expected to be higher than previously assessed on the back of the upward adjustment of electricity charges, but it is expected to return to the target range by the end of 2023. Core inflation projection is close to the previous assessment at 2.6%, 2.5%, and 2.0% in 2022, 2023, and 2024, respectively. Meanwhile, medium-term inflation expectations remain anchored within the target range. However, the Committee will continue to closely monitor risks to inflation, especially a potential increase in cost pass-through as well as domestic energy prices which remain uncertain.

The MPC assesses that overall financial system remains resilient while financial conditions remain accommodative.  

Debt serviceability of businesses and households has improved in line with the economic recovery. However, the financial positions of some SMEs and households remain fragile and sensitive to the rising living costs and debt burden as incomes have yet to fully recover. Meanwhile, funding costs in the private sector gradually rise in tandem with the policy rate but remain conducive for business financing, with credit and funding in the bond market still seeing growth. The baht against the US dollar has been highly volatile owing mainly to expectations surrounding the monetary and macroeconomic policy in major economies.