KResearch assesses that the Monetary Policy Committee (MPC) will keep its policy rate at 0.50 percent during the meeting slated for September 29, 2021, following a decrease in the number of daily COVID-19 cases in the country. In its previous meeting in August 2021, the MPC voted 4 to 2 to maintain the policy rate; the two dissenting members viewed that it should be cut by 0.25 percent per annum. Nevertheless, KResearch expects that the MPC will be less inclined to reduce its policy rate at the upcoming MPC meeting since the number of daily COVID-19 cases has passed its peak and is now on a declining trend. As lockdown measures have steadily been relaxed, economic risks have started to decrease. Thus, the policy rate will likely remain unchanged at 0.50 percent in the upcoming meeting. Additionally, the MPC is expected to keep its GDP growth forecast for 2021 at approximately 0.7 percent, consistent with the projection announced in the MPC's previous meeting, in August 2021. However, a policy rate cut is still a feasible option if another surge of COVID-19 were to hit Thailand and affect the broader economy, albeit with low possibility at the moment,.
Even though a policy rate cut could help to ease economic impacts via lower funding costs, doing so when many central banks including the Federal Reserve (the Fed) have started to signal QE tapering in the near future would have a higher economic cost than implementing the cut when central banks worldwide are still pursuing an expansionary monetary policy. In other words, a policy rate cut in Thailand in contrast to the global interest rate trend would emphasize the vulnerability of the Thai economy and consequently affect investor confidence, triggering a capital flight from Thailand. The Baht would depreciate even further, just as the US dollar has strengthened following the Fed's signal of imminent QE tapering. If the abovementioned scenario were to become more apparent, the Bank of Thailand (BOT) would have to weigh its options more cautiously. That said, the BOT will likely utilize efficient measures to relieve the burden of businesses and households hard-hit by the pandemic amid this fragile economic recovery.