KResearch assesses that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50 percent in the meeting slated for November 10, 2021, in light of positive economic factors that stem from Thailand's reopening and continuous easing of lockdown measures. These have benefited the recovery of domestic economic activity, particularly consumption and investment. The tourism sector is also undergoing faster-than-expected recovery, which will likely be a boon to employment. While the number of inbound tourists for 2021 may be limited, it is expected to increase significantly over the forthcoming period. Concurrently, accelerated vaccination should allow more than 70 percent of the Thai population to be fully vaccinated by early 2022 at the latest, thereby mitigating COVID-19 risks. Nevertheless, the situation in Thailand and abroad remains fraught with uncertainty, as many countries including Singapore, China, the United Kingdom and Russia are seeing a dramatic resurgence of COVID-19 cases. For this reason, the MPC is expected to maintain its policy rate at 0.50 percent at the upcoming meeting in order to support Thailand's economic recovery amid existing risk factors.
Although inflation has surged considerably due to a spike in energy prices, Thailand's headline inflation is expected to remain within the MPC's inflation targeting framework of 1.0-3.0 percent. However, risks of higher inflation will persist if global crude oil prices surge above USD 90 per barrel and do not fall back down as forecast, putting pressure on the MPC's monetary policy implementation. Thailand's inflation rate rose to 1.7 percent YoY in September 2021, after a measure to reduce water and electricity bills came to an end, and oil prices spiked. Looking into the remainder of 2021, inflation is projected to soar higher than previously forecast in line with an upward trend in oil prices as well as rising prices of certain vegetables as many farmlands have been affected by floods. Thailand's inflation rate for 2021 will likely stand at 1.2 percent, with the government set to cap diesel prices at THB 30 per liter to reduce the impact on people's cost of living. Nonetheless, if global crude oil prices continue to rise and do not see any decline in 2022, Thailand's inflation rate may exceed the inflation targeting framework, effectively putting the recovering Thai economy at risk of stagflation. Such a risk factor would undoubtedly present a challenge to the MPC's monetary operations in the near future. If the policymaker opts to cut the policy rate to stimulate the economy, it would accelerate inflation, which would then affect consumers' purchasing power. On the other hand, raising the policy rate would not help to solve the fundamental causes of inflation, and could further weaken an already feeble economy.