Abstract
The Monetary Policy Committee (MPC) in Thailand has voted unanimously to raise the policy rate by 0.25% from 1.75% to 2.00%. This decision is driven by expectations of continued economic expansion, primarily through tourism and private consumption. While overall inflation is slowing, core inflation remains elevated due to increased demand pressures and higher costs. The MPC believes that gradual policy normalization is appropriate given the growth and inflation outlook. The committee projects Thai economic growth at 3.6% and 3.8% in 2023 and 2024, supported by recovery in tourism and improving merchandise exports. Inflation is expected to decline gradually, but upside risks persist from demand pressures and government policies. The overall financial system is deemed resilient, although some SMEs and households remain vulnerable. Financial conditions have become less accommodative due to higher funding costs. The baht has depreciated against the US dollar, influenced by the Federal Reserve’s policies and domestic uncertainties.
The MPC voted unaminously to raise policy rate by 0.25% from 1.75% to 2.00%.
The Thai economy should continue to expand, driven mainly by tourism and private consumption. Mechandise exports are expected to recover gradually. While headline inflation slows, core inflation remains elevated. Inflationary risks stem from greater demand pressures amid expanding economic activity and higher cost pass-through from supply pressures. The Committee deems a continuation of gradual policy normalization to be appropriate in light of the growth and inflation outlook.
The MPC projected the Thai economic growth to be 3.6% and 3.8% in 2023 and 2024.
A key impetus is the broad-based recovery in tourism, which should promote employment and labor income, in turn sustaining private consumption. Merchandise exports are recovering broadly consistent with expectation, and should improve in line with a moderate expansion in the global economic activity. The Committee recognizes upside risks to domestic growth, in part owing to forthcoming government economic policies. At the same time, there is a need to monitor the uncertain economic and monetary policy outlook of major economies.
The MPC projected headline inflation to be 2.5 and 2.4 percent in 2023 and 2024.
Inflation should continue to decline at a gradual pace. Headline inflation returned to the target range due to easing electricity and oil prices. Moreover, core inflation is projected to stabilize at 2.0 percent in 2023 and 2024, an elevated level relative to the past. Upside inflationary risks exist from greater demand pressures amid expanding economic activity and higher cost pass-through from supply pressures, in part contingent on government economic policies looking ahead. As a result, there is a need to monitor the price-setting behavior of businesses.
The MPC assessed that the overall financial system remains resilient, while financial conditions turned somewhat less accommodative.
The overall financial system remains resilient. Financial institutions maintain high levels of capital and loan loss provision. Debt serviceability of households and businesses has improved in tandem with the economic recovery. Nevertheless, financial fragilities remain for some SMEs and households that are exposed to rising living costs and higher debt burden. Overall financial conditions turned somewhat less accommodative owing to higher private sector funding cost consistent with the policy interest rate. Current financial conditions nonetheless remain supportive of the ongoing recovery and mobilization of funds by the private sector. The baht depreciated against the US dollar, in part influenced by the Federal Reserve’s monetary policy outlook, the renminbi depreciation and domestic political uncertainties.
