The MPC is expected to maintain policy rate at 1.50%; monetary policy direction should be clearer in 2H18

            KResearch expects the Bank of Thailand's Monetary Policy Committee (MPC) to “maintain" their policy rate at 1.50 percent for the third time in 2018 during its meeting on May 16, 2018 to support the continued momentum of Thai economic growth.  Domestic spending has not fully recovered amid limited supporting factors from the fiscal policy and relatively low pressure on inflation, making monetary easing policy suitable for the current state of the Thai economy. At the same time, trade tensions between the US and China linger after Washington and Beijing failed to find a solution for their trade dispute during the previous rounds of trade talks, leading to fears of possible retaliatory measures from China, which could indirectly impact Thailand.

          Issues to be followed are the direction of the Thai government bond yields as the Thai bond yields for every maturity term have begun to show upward movement. Particularly, the medium-long term Thai government bond yields rose around 0.2-0.3 percent compared to the levels registered early this year. This factor may impact the financial costs of companies planning to raise funds via capital markets in the future. If the US Federal Reserve signals and hints to raise their long-term bond rates, it may create a new round of volatility in the financial market. Therefore, business operators and people should closely watch the situation to better prepare for possible fluctuations and an increase in financial costs that may incur in the future.

          Looking forward, the MPC will face more difficult challenges in implementing monetary policy under the current Thai economic environment, which is expected to be better in the second half of the year.  In addition, the prolonged period of low interest rate has led to concerns over monetary stability risks. The market has, thus, put more weight on the possibility of rate increases. Nonetheless, the low interest rate policy has benefited an expansion of the Thai economy, especially where mega investment projects have begun to take shape, particularly the Eastern Economic Corridor (EEC). At the same time, the low rate has, more or less, cushioned the impact on household purchasing power from the structural issues of high housing debts while mitigating impacts from wage hikes that were adjusted early this year on small and medium companies. Therefore, KResearch expects that the MPC will thoroughly take into account all of these factors, and Thailand's monetary policy should be clearer  in the second half of this year.