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24 Jan 2023

Econ Digest

First MPC meeting of the year scheduled for January 25, 2023…the MPC is expected to raise its policy rate by 0.25% amid inflationary pressure and economic recovery trend

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        The Monetary Policy Committee (MPC) is expected to raise its policy rate by another 0.25% to 1.50% at the upcoming meeting, amid inflationary pressure that remains higher than the Bank of Thailand (BOT)’s target. Meanwhile, the Thai economy tends to see a continual recovery, driven by China’s early border reopening. Thailand’s headline inflation accelerated to 5.89%YoY in December 2022. In addition, core inflation rose to 3.23%YoY in December, close to the level of the previous month, reflecting persistently high inflationary pressures. Regarding the economic outlook, Thailand's economy continues to recover. The sooner-than-expected reopening of China would be a supportive factor for accelerating Thai economic expansion, as Thailand is a popular destination for Chinese tourists. Plus, gradual demand normalization in China would be a boon to Thai exports, despite ongoing pressure from the overall global economic slowdown.

        Looking ahead, the MPC is highly likely to raise its policy rate only one more time by 0.25% within the first quarter of 2023, and may maintain the rate at 1.75% throughout 2023. The Thai inflation rate should tend to gradually drop to the BOT’s target range of 1-3% by the second half of this year. Meanwhile, the Thai economy is likely to experience an uneven or K-shaped recovery. Brighter prospects lie ahead for the tourism- and service-related industries. However, other industries, especially those related to exports, are likely to remain fragile due to the impact of the global economic slowdown. Additionally, the Baht is likely to see easing pressure and appreciate, especially in the first quarter of the year. However, looking ahead, attention should be paid to the Thai economic and inflation data, as well as key policy rate trends of major central banks like the US Federal Reserve (Fed). If Thailand’s inflation rate remains at a high level for longer than expected, and the Fed continues its aggressive rate hikes, the MPC will face more pressure and may need to raise its policy rate higher than previously forecast.

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