The Monetary Policy Committee (MPC) is expected to raise its policy rate by 0.25 percent to 0.75 percent at the upcoming meeting amid increased inflationary pressure, while the steady recovery trend of the Thai economy will also prompt the MPC to possibly slow down the economic accelerator pedal gradually. The Thai economy continues to face high inflationary pressure with Thailand’s inflation rate, as measured by the Consumer Price Index (CPI), increasing by 7.61 percent YoY in July 2022, which is down slightly from the 7.66 percent YoY increase in June. In addition, core inflation, excluding raw food and energy costs, accelerated to 2.99 percent YoY from a 2.51 percent increase last month, reflecting higher and more widespread costs passed on to consumers. Despite a slight slowdown in oil prices and headline inflation, domestic increased inflationary pressure remains high, so the MPC is tending to focus more on the inflation risk.
Looking ahead, KResearch is of the view that the MPC may consider raising its policy rates gradually during the remainder of 2022, leading to a policy rate of 1.00-1.25 percent by the end of 2022. Close attention must be paid to Thai economic performance and the inflation rates. If inflation rates keep rising amid the Thai economic recovery that is being bolstered by tourism, the MPC will consider raising its policy rate at all meetings for the remainder of 2022. However, going forward, the Thai economy will still face the risk of a slowdown in the global economy, particularly in the US and China, which could affect Thai exports and tourism sectors, while weaker global demand may ease global inflation to some extent. Therefore, the direction of Thailand’s policy rate in 2023 will hinge on the global economic recovery, inflation, and external stability amid rising geopolitical tensions.
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