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29 Sep 2022

Econ Digest

The Baht continues to depreciate after the MPC raised the policy rate by 0.25%

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        The Monetary Policy Committee (MPC) voted unanimously to increase the policy rate by 0.25% from 0.75% to 1.00% at the meeting on September 28, 2022. The MPC views that the Thai economy continues to recover despite the increasing inflation risk and the inflation rate will return to its target by 2023, thus the MPC deems that the policy rate should be raised gradually and has kept its projection for Thai GDP in 2022 unchanged but has cut its projection for Thai GDP in 2023 in line with the global economic slowdown. As a result, the Baht continues to depreciate after the MPC meeting.

        KResearch views that the Baht will continue to face depreciation pressure over the next 1-2 months. If the Federal Reserve (Fed) does not signal faster and bigger rate hikes than the market recognizes, and Thailand’s tourism sector recovers as expected, prompting the current account balance to a surplus at the end of this year, these scenarios will be supportive factors for the Baht’s future movement. However, if the U.S. inflation rate does not ease significantly and the Fed continues its aggressive rate hikes at the remaining meetings during the final quarter of 2022, the Baht will continue to face depreciation pressure until the end of this year.

        As for the MPC’s interest rate hike, KResearch believes it will tend to gradually increase, but expects the MPC to adjust the size and timing of the interest rate hike if the economic outlook and inflation rate differ from previous assessments

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