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SCB expects Thai policy rate to continue rising
EIC expects the MPC to raise policy rate 0.25% at the meeting in November 2022, leading policy rate to end the year at 1.25%.
The MPC votes unanimously to raise policy rate by 0.25% from 0.75% to 1.00%.
The Thai economic recovery has continued to gain traction, driven mainly by tourism and private consumption. Headline inflation remains at a high level as cost pass-through has increased in the recent period despite declining commodity prices. The overall growth and inflation outlook is consistent with the previous assessment. The Committee deems that a gradual policy normalization remains an appropriate course for monetary policy and is ready to adjust the size and timing of policy normalization should the growth and inflation outlook shift from the current assessment.
The MPC projects the Thai economy to continue growing at 3.3% and 3.8% in 2022 and 2023, respectively.
Such growth will be driven mainly by tourism and private consumption. The tourism sector recovers faster than expected as the number of foreign tourists continues to rise. Moreover, the economic recovery has become more broad-based, both in terms of business sectors, especially services, and in terms of income distribution. Meanwhile, the slower-than-expected global economy has an impact on Thai exports but would not derail the overall economic recovery.
The MPC expects headline inflation in 2022 and 2023 at 6.3% and 2.6%, respectively.
Headline inflation is expected to decline due to falling global oil prices and gradual easing of supply chain bottlenecks. Core inflation is projected to be at 2.6 percent in 2022 and 2.4 percent in 2023, rising more than previously assessed mainly on the back of higher cost pass-through. Wages have increased in some sectors and areas with labor shortages, but there have not been signs of a broad-based wage increase. Furthermore, demand-side inflationary pressures are limited as the Thai economy is still in a recovery stage. Meanwhile, medium-term inflation expectations remain anchored within the target range. The Committee will continue to closely monitor risks to inflation, especially a potential increase in cost pass-through, should businesses face rising cost pressures from multiple sources simultaneously.
The MPC assesses that overall financial system remains resilient, while overall financial conditions remain accommodative.
Although government bond yields have gradually increased, overall funding costs remain conducive for business financing. Meanwhile, the depreciation of the baht against the US dollar has been rapid and continuous due to the strengthening of the US dollar but has not affected the overall growth and inflation outlook. In addition, debt serviceability of households and businesses has improved in line with the economic recovery. However, SMEs in some sectors have yet to fully recover and some low-income households are still sensitive to the rising living costs. The Committee views that financial institutions should continue to press ahead with debt restructuring and deems it important to have targeted measures and sustainable solutions in place for vulnerable groups.
Author: Wachirawat banchuen, Nichanan logewitool
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