The US Federal Reserve (Fed) raised its policy rate by 0.25% as expected at the Federal Open Market Committee (FOMC) meeting on March 21-22, 2023, bringing the policy rate up to 4.75-5.00%, and the Fed also signaled that the rate hike is nearing its end. However, the Fed will continue to weight inflationary risks and believes that further tightening may be appropriate, while not considering a rate cut in 2023. As for the troubled U.S. banks, the Fed believes that the U.S. banking system remains sound, but such problem could lead to tighter credit conditions for households and businesses, which would affect economic activity, employment and inflation in the future. As a result, the Fed has slightly cut its projection for economic growth this year.
As for the impact on the Thai economy, the slowing U.S. economy, due to the Fed’s continued rate hikes since 2022 and coupled with the U.S. banking issues, will affect Thai exports through a slower growth rate than before. Thailand’s inflationary pressure will tend to gradually ease in line with falling global oil prices, following the slowdown in global economic activities. Regarding the Baht’s outlook, it is expected to remain highly volatile in the second quarter of 2023 amid global uncertainties. However, only a slowdown in the timing of the Fed’s policy rate hike will give the Baht the opportunity to fluctuate in the direction of appreciation.
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