Presently, there are concerns about rising inflation around the world, including in the US and Thailand. However, the nature of inflation and economic conditions in Thailand and the US differ. In Thailand, the current inflation has been driven by supply-side factors, and the fact that Thailand is being pressured by the third wave of COVID-19, which is set to have a direct impact on the Thai economic outlook over the remainder of 2021 and through to 2022.
Given this, KResearch assesses that it is highly unlikely that interest rates in Thailand will increase (which is not the same case as inflation that tends to rise with economic growth). This is because the Monetary Policy Committee (MPC) may continue to put more weight on tackling economic issues than inflation problems while also maintaining its accommodative monetary policy stance by keeping the policy rates at low levels to support overall economic activity. Such actions will likely be undertaken concurrently with the implementation of fiscal measures, aimed at stimulating the economy and sustaining purchasing power and income of households during this difficult time. As a result, it is expected that commercial bank interest rates and short-term interest rates in the financial market as dictated by the MPC's policy rates will remain low.
Regarding the impact of rising inflation on returns on savings and investments, this is reflected in past interest rates in the financial market and commercial bank interest rates that have moved in line with the MPC's policy rates. Therefore, when the policy rates remain low while economic conditions are still weak and there is high liquidity in the commercial banking system (THB4.62 trillion), interest rates in the financial markets and commercial bank interest rates will likely stay at low levels accordingly. It was also evidenced by the fact that Thailand's real or nominal interest rates began to decline in April 2020 when inflation picked up.