KResearch projects that the Monetary Policy Committee (MPC) will keep its policy rate steady at 1.75 percent at the fifth meeting of 2019 slated for August 7, 2019. It is expected that the MPC will attach importance to long-term stability at the upcoming meeting as it is experiencing more challenges in implementing its money policy amid numerous downside risks, in particular financial stability risk resulting from a steady acceleration of household debt that may stifle Thailand's long-term economic performance. To cope with stability risk, the Bank of Thailand (BOT) has implemented both macro and micro prudential policies, namely the LTV ratio. It is also scheduled to introduce loan quality standards, namely the debt service coverage ratio (DSCR), by the end of 2019. However, it may take some time for these measures to yield results.
Looking ahead, it is expected that the Thai economy will experience more risks and this may affect the implementation of BOT's monetary policy. Risks to the Thai economy, in particular our external sectors, were clearly seen in recent months due to the escalating US-China trade dispute. The US recently announced to impose a 10 percent tariff on the remaining USD300 billion of Chinese imports, effective September 1, 2019. In addition, Brexit may steepen volatility in capital movements. Meanwhile, the MPC may have to monitor the results of the new government's economic stimulus measures. Stability in the global financial markets overall was seen after the medium-to long-term bond yields have declined by 0.3-0.6 percent from those seen at the beginning of 2019 along with easing pressure from the Baht's appreciation, thanks to the BOT's supervisory measures, and signals from the FOMC meeting in July 2019 that its mid-cycle rate adjustment was not the beginning of downward interest rate cycle, may help reduce pressure from the stronger Baht and support the Thai economic growth, going forward.
Given this, we at KResearch view that the MPC may take the above factors into account when assessing the Thai economic outlook. If the Thai economy slowdowns in 2H19, the MPC may review its monetary policy, going forward.