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17 Dec 2020

Financial Institutions

MPC Meeting, December 23, 2020: Policy Rate Likely Maintained at 0.50% after Economy Has Picked Up (Business Brief No.3901)


              ​KResearch expects that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50 percent during the meeting slated for December 23, 2020 because there are signs showing steady recovery in the Thai economy after the government implemented measures aimed at stimulating the economy and sustaining purchasing power. Recently, the government decided to extend the co-payment scheme and offer more cash handouts to welfare cardholders, which may help reinvigorate domestic spending until at least 1Q21. However, the Thai economic recovery is still in its early stages; therefore, the MPC will continue to be cautious in assessing its economic outlook for 2021 even though its current growth projections for the Thai economy at -7.8 percent for 2020 and at 3.6 percent for 2021 may be revised upward.     

            Nevertheless, close attention must be paid to the recovery rate of the Thai economy, particularly during 1H21, because of numerous risks. These include the COVID-19 pandemic at home and abroad because it will continue to inhibit exports and tourism. In addition, the persistently appreciating Baht, due to Thailand's strong fundamentals, resulting from the current account surplus, and the softening greenback in line with the Fed's further monetary easing, may pressure the Thai economic recovery, which remains fragile. Recently, the Baht strengthened past the psychological level of THB30/USD after the US Treasury report on macroeconomic and foreign exchange policies of US major trade partners added Thailand to the Monitoring List.

            The fact that Thailand is on the US Treasury's Monitoring List may not directly affect the implementation of policies aimed at maintaining economic and financial stability. Nevertheless, the strengthening Baht under the above condition will present a complicated challenge for the relevant Thai authorities as increased volatility in the Baht will substantially affect the overall Thai exports and economy, as well as causing inflation to remain at a low-level for a long time. If such events are prolonged, and the Thai economy is plagued with more risks, the MPC will likely be pressured to further cut its policy rates. 

Financial Institutions