MPC Meeting, September 19, 2018: Policy Rate Likely on Hold at 1.50% Pending an Appropriate Rate Hike Ahead (Business Brief No.3759)

             We at KResearch are of the view that the Monetary Policy Committee (MPC) will likely keep its policy rate steady at 1.50 percent during the meeting scheduled for September 19, 2018. This is because it may not see the need to raise its policy rate much at this time despite steady improvements in the Thailand economy. Moreover, volatile capital movements and benign inflation may not prompt the MP​C to change its stance at the upcoming meeting either.  Inflationary pressure is limited especially from the demand side while there are no signs that inflation expectation will increase significantly in the future, so there is no need for the MPC to raise its policy rate in order to curb inflation now. In addition, Thailand's external stability remains robust; therefore risk of capital flight is low as evidenced by net purchase of foreign investors in the Thai bond market. Given this, a policy hike may only attract more foreign capital into Thailand, thus strengthening the Baht's value on a par with currencies of our trade rivals.

            Looking ahead, close attention must be paid to the timing of the MPC's policy rate increase. After the Fed Funds rate has been raised twice so far this year, there has been a surge in capital outflows from emerging markets, thus steepening volatility in the Asian forex market. Due to Thailand's robust external stability, risk stemming from capital exodus is limited. This coupled with steady growth foreseen in the Thai economy during 2H18, plus relatively low inflation, we at KResearch, therefore, are of the view that the MPC may hold its policy rate until the 2018 yearend. Meanwhile, the impacts of international trade disputes on the Thai economy may also prompt the MPC to be more cautious toward its monetary policy stance pending clarity of such factors ahead.​