MPC meeting on Feb 6 is likely to keep rate unchanged, while future rate hike depends on economic situation (Business Brief No.3786)

 KResearch expects the Bank of Thailand’s Monetary Policy Committee (MPC) to keep the policy rate unchanged at 1.75 percent during the upcoming meeting after it raised policy rate by 0.25 percentage point on December 19, 2018.  Since the Thai GDP growth begins to show signs of slowdown, the MPC is likely to closely monitor the Thai economic development. Meanwhile, the recent rate increase has not significantly tightened financial conditions. In short, an accommodative monetary policy is still needed to shore up an expansion of the Thai economy.

Looking ahead, the MPC will incorporate data dependent approach in its decision-making based on the economic situations.  Amid low inflation pressure, the MPC may not find it necessary to raise the policy rate in the near future. It is noted that the Thai economic outlook in 2019 still faces many uncertainties especially external risk factors from the international trade war and the recent rise of Thai Baht. On the US trade war with China, KResearch holds the view that the two economic powerhouses are unlikely to find a concrete solution before March 2, 2019 because of deep differences in terms of demands from both sides.  Therefore, Chinese exports to the US are still under the threat of 25-percent punitive tariffs. On a scenario that the talks produce certain progress, Washington may collect 10 percent tariffs on Chinese imports until both sides could reach an agreement. Hence, the pressure on Thai outbound trade still remains. Moreover, the strengthening Thai Baht, driven by Thailand’s external stability, and the weaker greenback may add risk factors to Thailand’s international sector. The MPC will have to closely monitor the economic sentiment before making interest rate decisions. External uncertainties are likely to present clearer signs around the end of the second quarter of this year, making the path of Thai economic growth more comprehensible. If the Thai GDP can perform up to its capacity and achieve 4 percent growth as earlier estimated, the MPC may consider raising the policy rate, possibly in the second half of 2019. However, if high risks against the Thai economic growth persist, the MPC may choose to keep the policy rate steady at 1.75 percent throughout 2019.