KResearch
expects that the Monetary Policy Committee (MPC) will keep its policy rate
steady at 0.50% during the meeting scheduled for November 18, 2020, due to following
supporting factors: (1) The Thai economy has bounced back faster than previously
anticipated. Thailand’s GDP in the third quarter of 2020 shrank 6.4%YoY,
bettering the 12.1% contraction reported for the second quarter of 2020. (2) Financial and loan measures will help
bolster liquidity for cash-strapped businesses and support operational
mechanisms of fiscal stimulus measures. (3) Non-interest measures may address
issues related to the Baht’s appreciation more effectively. Since Thai policy
rate is already very low, the MPC is expected to maintain its policy space in
case of necessity. Nonetheless, the rapid appreciation of the Baht since the
beginning of November 2020 will become one of the factors that the MPC will
prioritize at the upcoming meeting as it could derail the Thai economic
recovery.
KResearch assesses
that the Thai economy will likely experience a number of downside risks ahead,
and that the MPC may ease its monetary policy if needed. Although the MPC may
maintain its policy rate at 0.50% in the base case, it will be quite
challenging for the MPC to ensure steady economic recovery as it hinges on many
factors, such as the resurgence of the COVID-19 pandemic at home and abroad, the
domestic political situation, and the effectiveness and adequacy of economic
measures that have already been implemented. The aforesaid factors will be
closely monitored by the MPC, while additional interest rate cuts may be
implemented if those factors become so volatile that the Thai economic recovery
is derailed. It is also expected that under such circumstances, the financial institutions development fund
(FIDF) rate reduction or other measures should
be considered to relieve the pressure on financial institutions to ensure lower
financial costs for customers.
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