KResearch expects that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50 percent during the meeting scheduled for May 5, 2021 to support economic recovery amid this period of heightened uncertainty. This economic atmosphere stems from the new COVID-19 outbreak which remains severe, with an upward trend of more than 1,000 daily cases. Meanwhile, Thailand’s public health system has limited capacity for accommodating infected individuals. This scenario is further compounded by the uncertainties surrounding the COVID-19 vaccines’ effectiveness and distribution that could be more delayed than expected. As a result, the outbreak still poses a significant risk to the Thai economy, which in turn affects consumer confidence and international tourists’ confidence towards traveling to Thailand. Hope for recovery in the tourism industry and its role as a driver of economic growth may take longer to be realized. On the other hand, continuity of stimulus packages, and monetary and fiscal policy coordination should prove instrumental to economic recovery amid high levels of negative risk.
The MPC will likely prioritize the adoption of measures aimed at target groups in order to directly address current issues rather than broad-based policies like policy rate cuts. Existing monetary and fiscal policy measures should help to somewhat ease the impacts of the pandemic on businesses and households, and sustain the Thai economy, to a certain extent. Recently, the Bank of Thailand (BOT) has issued a soft loan facility and asset warehousing program worth a total of THB 350 billion to provide additional assistance to businesses that were hard-hit by the COVID-19 crisis. On the fiscal front, economic stimulus measures have been steadily implemented, with expectation of additional subsidies and relief schemes under the the government’s THB 1trillion borrowing plan and a total of THB 300 billion available from the central budget of the Annual Expenditure Budget Act for 2021.
If the situation tends to worsen, the MPC should be willing to utilize additional monetary policy instruments where appropriate. The severe COVID-19 situation in Thailand and abroad remains fraught with risks amid the emergence of new variants and recent outbreaks across multiple countries, though several countries like the United States and the United Kingdom have begun to see some improvement in their control of the crisis. The MPC may thus need to closely monitor the situation and continually make risk assessment. Moreover, the MPC is expected to primarily focus on supporting Thailand’s be prolonged to the point where it begins to severely undermine consumption, the tourism sector and the labor market- all of which are in a fragile environment, the MPC could consider releasing additional relief measures, with possibility of policy rate reduction, going forward.