The Monetary Policy Committee (MPC) resolved to keep its policy rate on hold at 2.25 percent at its first meeting of 2014 on January 22 amid heightened political tension and bleak economic prospects.
KResearch is of the view that the MPC will face a daunting near-term task vis-à-vis monetary policy as an important mechanism toward sustaining economic growth due to restrictions in fiscal mechanisms and costs that marginalize long-term economic stability. As a result, the MPC will have to weigh downside risks more carefully before setting rates ahead.
If the headwinds steepen, the MPC will likely place greater weight on maintaining economic growth by trimming the policy rate at either an emergency meeting or subsequent regular meetings, though such a move might not yield immediate results.
However, if political and economic risks do not intensify amid lingering concern toward the economic costs of any policy rate cut, e.g., inflationary pressure, Baht's stability, bubble asset risks and household debt, it is expected that the MPC will keep their policy rate intact at 2.25 percent for the near-term to thus maintain monetary discipline and foster long-term economic stability until positive signs emerge in relevant indicators, as well as in the domestic political situation.
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