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15 Feb 2022

Econ Digest

Watch for Economic and Inflation Signals… Anticipate Rising Interest Rate Cycle?

คะแนนเฉลี่ย

        The results of the latest Monetary Policy Committee (MPC) meeting held on February 9, 2022 reflects that while Thailand’s inflation rate may be higher than the target range in the near term, the MPC will continue to focus on economic stability, which has not yet fully recovered and is not expected to return to pre-pandemic levels until the end of this year or early next year. Under this scenario, the KASIKORN trading room estimates that the MPC will keep the Thai policy rate at 0.50% for the remainder of 2022. However, it is undeniable that one of the main variables that must be closely monitored and that will affect inflation and interest rate trends in Thailand is oil and energy prices in the global market amid the Ukraine crisis, and cost pressures on operators have also gradually and consistently increased.

        As for the interest rate trend of commercial banks, it still needs to wait for the signal of the change in policy interest rate first. If a financial institution wants to adjust the interest rate on general loans such as MLR MRR and MOR, it must also adjust the interest rate on general deposits such as three-month, six-month and one-year fixed deposits. The financial institutions will carefully consider environmental factors including economic variables, structure of the loan and deposit portfolio, and other risks that may occur. However, in the past cycles of prime interest rate hikes in Thailand, it can be observed that when a prime interest rate hike is imminent, banks may be seen to increase certain types of rates first such as special fixed deposit rates, fixed deposit rates over two years, and/or some long-term loan rates, depending on their deposits and loan portfolio structures, in response to the direction of bond yields and the previous gradual increase in medium and long-term financial costs.

        For borrowers, while policy interest rates and bank interest rates will remain stable for most of this year, it would be better to start preparing for a possible rise in interest rates. As for the business sector that needs to raise new capital to catch up with the gradual recovery of economic activities, it may have to look ahead to other options and borrowing plans. At present, the interest cost of issuing 5-year or more corporate bonds is rising steadily compared to 2021. If signals of rising policy rates in Thailand become clearer at the end of this year and early next year, the cost of issuing short-term corporate bonds will also face greater pressure. At the same time, financial institutions may also face more interest burden on loans when lending rates such as MLR or BIBOR also start to increase.
For retail customers, current retail loan products such as credit cards, personal loans, auto mortgage loans, Nano Finance and Pico Finance all have explicit interest rate caps. However, for other retail loans, such as home loans, customers who have passed the first 3 years of the fixed interest period may have to prepare in advance for a potential increase in their interest burdens as the MLR or MRR rises. Customers may need to compare other options such as refinancing to help ease their interest burdens.

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Econ Digest